May 28, 2023

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2 Winning Finance Stocks That Still Have Room to Run

The Zacks Finance sector comprises a diversified set of players, ranging from banks, investment companies and insurance companies to real estate firms, which offer a varied set of financial services to their clients. While frequent rate hikes, a favorable pricing environment and higher pent-up demand leading to better consumer spending act as tailwinds for the finance stocks, the continued impacts of inflation might dampen their performances.

Drivers in Detail

Finance companies are the direct beneficiaries of growing interest rates. Investment yields of firms having exposure to rate-sensitive products and investments will benefit from an improving interest rate environment. Further, the Fed will likely continue to hike interest rates to tame inflation. Six rate hikes have been implemented by the Fed so far in 2022 and reports have surfaced hinting at probable rate increases in early 2023.

An improved pricing environment, exposure growth and solid customer retention rates drive premiums, one of the most significant contributors to an insurer’s top line. The insurers make efforts to diversify their portfolios, minimizing concentration risks. Though an active catastrophe environment comes with its share of worries, the same usually accelerates the policy renewal rate and prompts insurers to implement rate hikes for seamless claim payments.

A decline in mortality rates from the COVID-19 pandemic has reduced claim payments for insurers, which, in turn, drives its underwriting results and lead to improvement in the combined ratio.

Bringing in a ray of hope, multiple sources have hinted toward a fifth consecutive slowdown of the annual inflation rate in the United States in November 2022. A declining level of inflation positively influences the buying power of consumers. Substantial personal savings made during the COVID-19 pandemic acted as a cushion, facilitating continued consumer spending despite inflationary headwinds. Favorable spending habits of consumers bode well for the finance stocks.

Finance companies might also continue to pursue increased merger and acquisition (M&A) deals if inflationary pressure relaxes. The deals are necessary for firms to bolster capabilities and occupy a competitive edge across the areas they operate in.

Finance industry players continue to invest in technology like blockchain, AI, advanced analytics, telematics, cloud computing and robotic process automation. The advancements are expected to result in the automation of processes and bring down operating expenses, which will continue to benefit margins.

The Zacks Finance sector has dipped 13.7% year to date, which is lesser than the S&P 500’s decline of 17.7%.


Zacks Investment Research

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2 Top Stocks to Watch

Here we have picked two finance stocks that carry a Zacks Rank #2 (Buy) and exhibit great potential to retain a purple patch going forward. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in McKinney, TX, Globe Life GL is an insurance company that benefits from premium growth in its Life Insurance and Health Insurance segments. Life premium stands to benefit from a strong performance at its important distribution channels — American Income Exclusive Agency, Direct Response and Liberty National. Underwriting margins are aided by receding mortality claims arising from the pandemic.

The Zacks Consensus Estimate for Globe Life’s 2022 earnings suggests growth of 17.9% from the year-ago reported figure, while the same for revenues indicates a year-over-year improvement of 4.8%. The consensus mark for 2022 earnings has been revised 0.5% upward over the past 60 days. It carries a Zacks Rank #2 at present.

Year to date, shares of Globe Life have gained 25.3% against the industry’s decline of 21.7%.


Zacks Investment Research

Zacks Investment Research

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Based in New York, StoneX Group SNEX is a global financial service provider and boasts a vertically integrated product suite that can be leveraged by most major financial markets across the globe. A growing customer base and higher client engagement drive the performance of SNEX’s segments. Volatile market conditions and rising interest rates might also drive its performance.

StoneX’s earnings surpassed estimates in each of the last four quarters, the average surprise being 58.23%. The Zacks Consensus Estimate for SNEX’s fiscal 2023 earnings has been revised 2.5% upward over the past 30 days. SNEX currently carries a Zacks Rank #2.

Shares of StoneX have gained 52.4% year to date against the industry’s decline of 21.7%.


Zacks Investment Research

Zacks Investment Research

Image Source: Zacks Investment Research

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