Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. But worries about economic uncertainty and potential market volatility have kept sentiment in check, and over the past six months, the industry's 13.9% return has trailed the S&P 500 by 8.7 percentage points.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here is one resilient financials stock at the top of our wish list and two we’re swiping left on.
Two Financials Stocks to Sell:
Compass Diversified (CODI)
Market Cap: $478.5 million
Operating with a permanent capital structure unlike traditional private equity funds, Compass Diversified (NYSE: CODI) is a private equity firm that acquires, manages, and grows middle-market businesses across various industries.
Why Does CODI Fall Short?
- 1.6% annual revenue growth over the last two years was slower than its financials peers
- Earnings per share lagged its peers over the last two years as they only grew by 9.2% annually
- ROE of 1% reflects management’s challenges in identifying attractive investment opportunities
Compass Diversified’s stock price of $6.55 implies a valuation ratio of 2.6x forward P/E. If you’re considering CODI for your portfolio, see our FREE research report to learn more.
DigitalBridge (DBRG)
Market Cap: $2.26 billion
Transforming from a traditional real estate investor to a digital-focused powerhouse in 2021, DigitalBridge Group (NYSE: DBRG) is a global digital infrastructure investment firm that manages capital and operates assets across data centers, cell towers, fiber networks, and edge infrastructure.
Why Are We Wary of DBRG?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 35.2% annually over the last five years
- Below-average return on equity indicates management struggled to find compelling investment opportunities
- Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes
At $12.70 per share, DigitalBridge trades at 1.5x forward P/E. Dive into our free research report to see why there are better opportunities than DBRG.
One Financials Stock to Buy:
Synchrony Financial (SYF)
Market Cap: $26.5 billion
Powering over 73 million active accounts and partnerships with major brands like Amazon, PayPal, and Lowe's, Synchrony Financial (NYSE: SYF) provides credit cards, installment loans, and banking products through partnerships with retailers, healthcare providers, and digital platforms.
Why Do We Love SYF?
- Share buybacks catapulted its annual earnings per share growth to 30.1%, which outperformed its revenue gains over the last two years
- Balance sheet strength has increased this cycle as its 20.8% annual tangible book value per share growth over the last two years was exceptional
- Market-beating return on equity illustrates that management has a knack for investing in profitable ventures
Synchrony Financial is trading at $73.59 per share, or 8.1x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
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