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 7.1% gain has fallen behind the S&P 500's 11.5% rise.
Investors should tread carefully as many of these firms are also cyclical, and any misstep can have you catching a falling knife. Keeping that in mind, here are three financials stocks best left ignored.
BNY (BK)
Market Cap: $85.75 billion
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE: BK) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Does BK Give Us Pause?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.7% for the last five years
- Sizable asset base leads to capital growth challenges as its 6.3% annual tangible book value per share increases over the last five years fell short of other financials companies
- Underwhelming 9.3% return on equity reflects management’s difficulties in finding profitable growth opportunities
BNY is trading at $124.23 per share, or 14.8x forward P/E. Dive into our free research report to see why there are better opportunities than BK.
Affiliated Managers Group (AMG)
Market Cap: $8.87 billion
Using a partnership approach that preserves entrepreneurial culture at its portfolio companies, Affiliated Managers Group (NYSE: AMG) is an investment firm that acquires stakes in boutique asset management companies while allowing them to maintain operational independence.
Why Is AMG Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last two years
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 7.8% annually
At $315.19 per share, Affiliated Managers Group trades at 10.6x forward P/E. Check out our free in-depth research report to learn more about why AMG doesn’t pass our bar.
Navient (NAVI)
Market Cap: $1.21 billion
Spun off from Sallie Mae in 2014 to handle the company's loan servicing and collection operations, Navient (NASDAQ: NAVI) provides education loan servicing and business processing solutions that help manage federal student loans, private education loans, and government services.
Why Is NAVI Risky?
- Sales tumbled by 18.7% annually over the last five years, showing market trends are working against its favor during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- High debt-to-equity ratio of 18.6× shows the firm carries too much debt relative to shareholder equity, increasing bankruptcy risk
Navient’s stock price of $12.13 implies a valuation ratio of 11.2x forward P/E. If you’re considering NAVI for your portfolio, see our FREE research report to learn more.
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