It’s undoubtedly one of the toughest times for the stock market in years. The rising interest rates have been a thorn for equity investors. However, there are hidden bull markets all the time, and perhaps the best financial stocks are what investors should have a close eye on.
Financial stocks have performed impressively regardless of economic cycles. For banks, particularly, the rising rates are a bullish indicator, but it’s perhaps the opposite for asset management companies. Hence, investors must do their due diligence before placing their bets on financial businesses.
It’s important to have robust investment criteria based on profitability, top-line expansion, valuation and income. Moreover, it would also be the right move if investors could potentially find strong finance stocks that help make the best out of every adverse situation.
Amidst a myriad of choices at this time, I have curated seven of the best financial stocks you should add to your portfolios. These investments tick all the right boxes and offer a unique blend of the investment criteria mentioned above.
|OFS Capital Corporation
|Midland States Bancorp
OFS Capital Corporation (OFS)
OFS Capital Corporation (NASDAQ:OFS) is a small-cap financial services firm boasting a track record of incredible financial performance with robust profitability. It has had a penchant for rewarding its shareholders and currently offers a mind-boggling dividend yield of 13.50%.
The company focuses on debt and equity financing for middle-market enterprises. The bulk of its portfolio is debt instruments that carry a floating rate, though, effectively protecting it from asset decline in a high-interest rate environment.
Its portfolio covers multiple segments of a company’s capital structure, protecting it from major credit risks. Consequently, its recent results are in line with its historical averages, despite the troubling economic conditions while it trades at just 2.4 time’s forward sales estimates. This small-cap gem cannot be ignored at this time.
Midland States Bancorp (MSBI)
Midland States Bancorp (NASDAQ:MSBI) operates as a financial services holding company for the Midland States Bank. It offers an array of financial services, including mortgages, retail banking, commercial services and treasury management.
Midland has operated a stable business that has grown its top line by roughly 10% over the past five years. Also, it comes with an attractive 4.7% dividend yield.
Recent results have been relatively solid and in line with its historical performance. Its loan portfolio grew remarkably by 11% in its first half. However, it’s likely to slow down given the heightened interest rates.
Nevertheless, its acquisition plans should keep loan growth stable. It boasts a large balance of variable-rate loans, which points to single-digit earnings growth for the remainder of the year.
Trinity Capital (TRIN)
Trinity Capital (NASDAQ:TRIN) is one of the more reputable names in the business development world, providing venture debt and equity financing to high-growth startups.
Its business has demonstrated a strong ability to thrive in challenging market conditions and has continued to pay hefty dividends.
Business development companies have done significantly better than other financial businesses during a heightened inflation environment. Venture capital funding typically slows down in such an environment, which increases venture debt demand.
Therefore, startups have had to turn to venture debt from companies such as TRIN. Reports have shown that venture debt volumes in the U.S. have risen by an impressive 7.5% in the year’s first half. Additionally, TRIN’s investment commitments reached a record $460 million in the first half of this year.
Cincinnati Financial (CINF)
Cincinnati Financial (NADSAQ:CINF) is one of the leading property and casual insurers in the U.S. It accounts for roughly 1% of the total market, which is a tremendous feat given how fragmented the market is. With over $6 billion in annual premiums, it is among the top 25 insurers in its niche.
CINF has had it rough over the past few quarters amidst a tough operating environment. Consequently, its share price has dipped by over 30% in the past six months. Its lackluster performance of late has done little to slow down the pace of shareholder rewards.
CINF is one of the most appealing insurance companies and one of the market leaders in its niche in the U.S. It has one of the most attractive portfolios and has grown its payouts by over 60 years. Hence, with its stock trading at multi-year lows, it’s best to load up on it now.
Itaú Unibanco (ITUB)
Itaú Unibanco (NYSE:ITUB) operates as a full-service bank and has been around for almost a century.
It’s the leading Brazilian bank in terms of sales and has more than 4,000 physical branches and a presence in 18 different countries, primarily in the Latin American region.
Its business lines are highly diversified, including insurance, trading, credit, and other related services. The diversity allows it to effectively limit its risk exposure and grow its asset base over time.
Recently, it’s been going all-in to expand its digital footprint. Its digital bank, called iti Itáu, targets a younger demographic that doesn’t have bank accounts.
So far, iti Itáu has been an incredible inclusion to its portfolio, adding 16.7 million customers in the first quarter of this year. Considering how 70% of the Latin American population is unbanked or underbanked, Itaú’s digital arm has an amazing growth runway ahead.
Signature Bank (SBNY)
Signature Bank (NASDAQ:SBNY) is a New York-based full-service commercial bank with a client-focused approach.
It operates a balanced loan portfolio that has helped mitigate risks to an acceptably low level. Hence, it’s one of the few financial institutions that continue to perform well during these testing times.
Its second-quarter results were a blow-out, beating earnings per share estimates by 4%. Loan growth was perhaps the best it’s been in several quarters, with the firm maintaining credit quality at the same time. Net interest income came in at $649.1 million for the quarter, a 42% improvement from the prior-year quarter.
The improvement was driven by the expansion in interest-earning assets. Also, non-interest income was up by an amazing 61% to $37.7 million due to a bump in service charges. SBNY also declared a generous dividend of 56 cents per share, yielding a strong 1.43%.
Raymond James (RJF)
Raymond James (NYSE:RJF) is one of the most successful U.S.-based investment management firms.
Its banking division has been a consistent performer, and its superior execution has led to it operating a robust margin profile. In the past five years, its gross and net income margins have averaged 94% and 15%, respectively.
As expected, its banking division, offering mortgages and commercial loans, has benefitted immensely from high rates. RJF offers its lender greater flexibility in what they can charge clients. Hence, its results have been superb of late, posting yet another earnings beat in its third quarter.
It’s the eighth straight quarter where the firm has beat analyst estimates on earnings which is an amazing achievement. Therefore, RJF is one of the soundest investment management firms out there that continues to perform regardless of the market conditions.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines