Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. Still, investors are uneasy as companies face challenges from an unpredictable interest rate and inflation environment. These doubts have certainly contributed to the indutry's recent underperformance - over the past six months, its 5.8% gain has fallen behind the S&P 500's 16.9% rise.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here are two financials stocks we think can generate sustainable market-beating returns and one best left ignored.
One Financials Stock to Sell:
Affirm (AFRM)
Market Cap: $25.12 billion
Founded by PayPal co-founder Max Levchin with a mission to create honest financial products, Affirm (NASDAQ: AFRM) provides a payment network that allows consumers to make purchases and pay for them over time with transparent, flexible installment loans.
Why Does AFRM Worry Us?
- Negative return on equity shows that some of its growth strategies have backfired
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $76.47 per share, Affirm trades at 22.5x forward P/E. Check out our free in-depth research report to learn more about why AFRM doesn’t pass our bar.
Two Financials Stocks to Watch:
Mastercard (MA)
Market Cap: $496.6 billion
Recognizable by its iconic "Priceless" advertising campaign that has run in over 120 countries, Mastercard (NYSE: MA) operates a global payments network that connects consumers, financial institutions, merchants, and businesses, enabling electronic transactions and providing payment solutions.
Why Are We Backing MA?
- Impressive 15.1% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Share buybacks propelled its annual earnings per share growth to 19%, which outperformed its revenue gains over the last five years
- Market-beating return on equity illustrates that management has a knack for investing in profitable ventures
Mastercard is trading at $553.45 per share, or 30.1x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
Charles Schwab (SCHW)
Market Cap: $169.8 billion
Founded in 1971 as a disruptive force challenging Wall Street's high fees and limited access, Charles Schwab (NYSE: SCHW) is a wealth management and brokerage firm that provides investment services, banking, and financial advice to individual investors and independent advisors.
Why Should SCHW Be on Your Watchlist?
- Annual revenue growth of 17.8% over the past five years was outstanding, reflecting market share gains this cycle
- Earnings per share have outperformed the peer group average over the last five years, increasing by 14.5% annually
- Industry-leading 13.9% return on equity demonstrates management’s skill in finding high-return investments
Charles Schwab’s stock price of $95.50 implies a valuation ratio of 17.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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