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Best Financial Stocks - Financial Stocks to Add to Your Portfolio

Posted on Thursday, November 28th, 2019 by Matthew Sweeney

Best Financial Stocks - Financial Stocks to Add to Your Portfolio

Money makes the world go around—at least in terms of driving a complex economy. Financial stocks are stocks issued by companies in the business of finance: banks, investment houses, credit unions, credit cards, and payment processing companies. These companies help individuals and organizations manage and grow their money.

Top Finance Companies in the World

The financial sector is made up of financial institutions, but this doesn’t only mean banks. Payment processing companies facilitate a payment every time someone swipes a debit or credit card. Investment brokerages specialize in wealth management by growing the money of their clients, or even managing other assets like real estate. Financial services aren’t just limited to the stock market or money, either. The financial sector is also comprised of insurance companies, which provide a contractual guarantee against various types of damage and alleviate liability.

Financial Sector

The financial sector is closely tied to the economy as a whole since banking institutions tend to fund a diverse range of businesses. However, governments are interested in maintaining the stability of banking institutions, so while a bear market might cause a downturn in the sector, it’s a safe bet that struggling institutions will be bailed out and recouped.

Some financial companies have swelled to epic proportions and there is a widely circulating belief that they are “too big to fail.” However, some of these institutions have been tied to severe crashes like the Stock Market Crash of 1929, which resulted in the Great Depression. By and large, however, banks have many stabilizing mechanisms and the securities they issue do not tend to be the most active stocks. In fact, they are usually great long-term investments, and many of them issue excellent dividends.

Top Finance Companies in the World

Here are some of the top financial companies on Wall Street and around the world. No portfolio of securities in the financial services sector should be without shares of at least some of these individual stocks:

Citibank is a subsidiary of Citigroup (NYSE: C), an international bank and investment house based in New York City. Citibank, their financial services arm, is the third-largest bank in the United States and one of the proverbial Big Four (the others are Bank of America, Wells Fargo, and Chase). Ranked 30th on the Fortune 500 list, Citigroup services 200 million accounts in more than 160 countries.

Citibank was actually the first US bank to open a branch overseas, in Buenos Aires, Argentina. Today, they offer branch-banking services, investment services, mortgages, credit cards, and high-net-worth asset management through Citigold. Like most banks, Citi has faced its fair share of regulatory issues and bad press, such as funding the controversial Dakota Access Pipeline, accusations of manipulating the markets, and failure to disclose the true extent of their involvement with Enron during its bankruptcy.

Ameriprise (NYSE: AMP) is a financial services company that focuses on financial planning, asset management, insurance, and annuities. Ameriprise was founded in 1894 in Minnesota. More than a century later, the company has an estimated 3 million clients with total assets of around $672 billion—which tells you that their financial services are geared toward the wealth management of high net-worth individuals. While Ameriprise Financial primarily focuses on retirement, a separate arm of the company, Columbia Threadneedle, reported $436 billion of assets under its guidance within the last decade, making it the 8th largest managed fund in the United States, 4th in the United Kingdom, and 27th globally.

Ameriprise has also expanded its offerings into the international market, through a Belgium-based holding company allowing Ameriprise to perform asset management in Europe, the Middle East, and Asia. A separate holding company oversees insurance and financial planning in India.

JP Morgan Chase & Company (NYSE: JPM) is the largest bank in the United States in terms of assets, and the sixth largest in the world—with $2.73 trillion under its name. Headquartered in New York City, this international full-service financial institution has a long history of powerful involvement in the financial world, tracing its roots to a partnership formed in part by tycoon J. Pierpont Morgan.

JP Morgan & Company helped finance the United States Steel Corporation, the world’s first billion-dollar corporation and the inheritor to the business of Andrew Carnegie. The company went on to finance a series of railroads around the United States, becoming the flagship of banking and finance for decades.

Chase Manhattan, which merged with JP Morgan & Co. (among other banks) in 2000, also has a long history of excellent financial management by the Rockefeller family. Today, the hedge fund managed by Chase is the third-largest in the world, with $45 billion in assets.

BlackRock, Inc. (NYSE: BLK) is one of the world’s largest asset management companies, with almost $7 trillion in managed assets as of 2019. BlackRock was founded in the late 1980s as a risk management and fixed income asset management company. Today the company operates in 30 countries, with clients in over 100 countries. BlackRock has been dubbed the world’s largest shadow bank—a financial services company that operates much like a normal bank, but isn’t bound by the same rules and regulations as one (since it isn’t really a bank).

BlackRock has received some negative attention for its purported contribution to global warming. It is one of the world’s largest investors in coal plant development and owns huge reserves of oil, gas, and natural coal—more than any other investor in the world. BlackRock is also the world’s largest investor in weapons manufacturing. Fortune, Forbes, and Vanity Fair have acknowledged BlackRock’s monumental role in global politics and economics. Select pundits have referred to it as the most influential financial institution in the world.

The Blackstone Group (NYSE: BX) is a New York based alternative investment firm—the largest in the world. They are known for leveraged buyouts and real estate investments, and have purchased sizeable shares in companies like Hilton Worldwide, Merlin Entertainment Group, AlliedBarton, and Vivint—reflecting a diverse but focused strategy of acquisitions.

Blackstone was started in 1985 by a pair of founders who had previously worked at Lehman Brothers, as a mergers and acquisitions advisory boutique—with just $400,000 in startup seed capital. Today, the total amount of assets under their management comes in at around $545 billion dollars, with offices around the world in London, Paris, Sydney, Tokyo, Hong Kong, and Dubai (to name a few). Blackstone was the first major private equity firm to list its shares on a publicly-traded market with its IPO in 2007.

Goldman Sachs (NYSE: GS) is one of the most recognized names in investment banking. It’s one of the largest investment banks in the world, a primary dealer in securities within US markets, and a sizeable market maker—essentially a company that buys and sells securities like stocks. Founded in 1869, Goldman Sachs pioneered the use of commercial paper (an unsecured promissory note used in trading) and helped Sears go public in 1906.

In repayment for their securitization during the subprime mortgage crisis, and because of the impact of the ensuing financial crisis of 2007-2008, Goldman Sachs received some government assistance with a $10 billion bailout. This was repaid in 2009. Many members of Goldman Sachs have been invested with coveted offices around the world, such as Secretary of State, Chief Financial Advisor, and even Prime Minister in Italy and Australia.

Credit Suisse Group AG (NYSE: CS) is a Swiss-based international investment bank and financial services company. With headquarters located in Zurich, it has offices in every single major financial hub in the world. Since its inception in 1894, Credit Suisse has been actively involved in financing Switzerland's infrastructure, such as railways and the electric grid, before expanding outward into involvement with larger infrastructure projects around Europe.

In the last part of the 20th century, Credit Suisse increased its market share by purchasing other banks, such as First Boston, Bank Leu, and the Winterthur Group. Credit Suisse is purported to be one of the “Bulge Banks” that serve as investment houses and asset management providers for large companies and governments, effectively placing Credit Suisse into an elite group of financial institutions upon which global economic stability is predicated. They adhere to a model of bancassurance, a strategy that involves providing their clients with every financial service they need, from banking to money management to insurance. Credit Suisse is also known for its strong adherence to client confidentiality.

Visa (NYSE: V) was the undisputed international credit card king, but is now surpassed by China’s UnionPay. Based in California, Visa facilitates electronic funds transfers, most commonly through their branded credit and debit cards. Visa does not issue any of these products themselves. Rather, banks and credit unions issue the cards, and Visa is responsible for processing the payments. Visa transactions around the world are processed at one of their four data centers in Virginia, Colorado, London, and Singapore. These facilities are payment processing fortresses that have been secured against possibilities of crime, terrorism, and natural disasters—not to mention the fact that they can process 30,000 transactions every second.

Visa was formed in 1976 through a joint effort of several banks, most noticeably Bank of America, to deal with numerous issues regarding payment processing and security of a recent financial invention: the credit card. The piecemeal nature of the credit card’s development had led to many problems in its use, and VISA was formed to manage payment processing and streamline the process, improving it for clients and banks.

ICBC, the Industrial and Commercial Bank of China (OTCMKTS: IDCBF), is the largest bank in China, and the largest in the world in terms of a combined tally of assets, customers, and employees. ICBC is one of China’s “Big Four” state-owned banks—the other three are the Agricultural Bank of China, China Construction Bank, and the Bank of China. ICBC is ranked number one on the Forbes Global 2000 biggest public companies, and number one on the list of Top 1000 World Banks, according to The Banker.

By the end of the 20th century, the ICBC had started operating in Europe, with branches in Luxemburg, Paris, Milan, Madrid, Warsaw, and Lisbon. ICBC has also made sizeable funding contributions to China’s new Silk Road project, which would create a trade network into Europe for the purpose of strengthening Chinese-European business—though critics view it as a thinly-veiled attempt of China to wield undue political power.

Mastercard (NYSE: MA) is an international payment processing company that facilitates payments made with its branded credit and debit cards. As a response to Visa, Mastercard was founded by banks who formed the Interbank Card Association—the name was later changed to Mastercard. Mastercard’s marketing attempts were epitomized by their longstanding slogan, "There are some things money can't buy. For everything else, there's Mastercard." Unlike Visa, Mastercard payments are not processed through centralized locations, but rather through a decentralized peer-to-peer ledger called Banknet, which the company views as more resilient and less prone to invasive danger.

Bank Stocks

Bank stocks are issued by consumer-facing financial institutions that accept deposits and issue credit. Banking has always been a part of human history, but the creation of modern banking arose from Renaissance Italy and Colonial-era London, where the first banknotes were issued in 1695. As banking became more complex, it became more highly regulated, and governments developed an interest in stabilizing banking institutions for the purpose of maintaining financial stability, locally and in terms of global trade. They created institutions like the Federal Reserve, a centralized bank born in 1913 out of a series of panics that prompted the government to alleviate potential financial crises.

Bank stocks do not typically fluctuate wildly like the stocks in unregulated startup industries, but there can be fluctuations based on the overall market, global news, and events that may shake consumer confidence (such as allegations of money laundering). Many bank stocks pay excellent dividends to shareholders, giving these securities an attractive price-to-earnings ratio. Because banks are often behind large-scale startup enterprises, investing in bank stocks can be a good way to capitalize on what’s trending without the risk of sinking your money into the frontline startups or unproven companies that have undergone fundamental analysis by the bank.

Many of the biggest banks that are good choices to invest in are well-known names, such as Bank of America, Wells Fargo, Chase (JP Morgan Chase), and Citibank (Citigroup). Since mortgages are mostly issued by banks, the banking industry also is very connected to the housing market and the general health of the real estate industry.

Insurance Stocks

Insurance is a mechanism whereby a person forfeits a small premium in return for the guarantee of a payout in case of an unfavorable event. And since that unfavorable event rarely happens, insurance companies end up collecting lots of money. If you’re wondering what they do with that money—they invest it. This means that investing in insurance stocks is a safe bet for riding on the profits of well-managed, constantly growing assets. Insurance is a great business.

In fact, contrary to popular belief, one of Warren Buffet’s most profitable enterprises has not been buying stocks, but rather insurance. Berkshire Hathaway, his company, is one of the largest insurance companies in the world. Other big-name players include AXA, ING Group, MetLife, and China Life. Keep in mind that insurance companies do not just sell to consumers who need to insure their car, home, and health—they also ensure large corporations with trillions of dollars in assets, effectively collecting billions of dollars in premiums.

REIT Stocks

Some of the best stocks for a dividend investing strategy are issued by real estate investment trusts, or REITs. These REIT stocks are a great way for investors to get into real estate without having to own any property. A REIT is like a mutual fund of income-generating properties, managed and optimized by someone else. The landed assets that make up the portfolio of a REIT could be comprised of offices, apartments, hospitals, hotels, shopping centers, and anything else that generates income.

Big-name REITs include Public Storage, AvalonBay Communities (multifamily properties) and Ventas (nursing homes). Trends in real estate are leaning away from shopping malls, and toward accommodating aging baby boomers—along with storing the property of share-economy millennials. To that end, REITs in the healthcare industry and public storage might be some of the best growth stocks for investors interested in real estate.

Financial ETF

Choosing the right financial sector stocks to invest in can be time-consuming and difficult for the average retail investor. They might be better served by placing their investable equity into a managed pool focusing on the financial sector, such as an exchange traded fund (ETF). This allows them to capitalize on industry growth without exposing themselves to the risk of putting all their eggs into one bank’s basket.

Picking out individual stocks can be fun, and since financial stocks are relatively stable there isn’t too much risk involved, assuming an investor goes with the established names in the sector. But what an investor does risk is failing to maximize the profit on his invested equity. An experienced money manager might know of a better stock to pick, one that will provide better returns. When you have a retirement portfolio building its way up to seven figures, a slight difference multiplied by thousands of shares can be the difference between a yearly cruise to Europe or just scraping by with rent.

The Financial Select Sector SPDR Fund (XLR) is the largest such fund in the country, with $25 billion in assets attached to names like JP Morgan Chase & Company and Berkshire Hathaway. Vanguard Financials ETF (VFH) is the second largest fund, with $8 billion invested in institutions large and small. Approximately 28% is invested with big banks like Bank of America, while 16% is invested in smaller regional banks like Citizens Bank. Even so, this fund is noted for maximizing the exposure of every dollar invested to the widest array of stocks, with an extremely low expense ratio of 0.1%. The SPDR S&P Regional Banking ETF (KRE) is a great way to eschew the larger names and invest in around 120 regional institutions.

Financial Stocks

Because the banking industry is so highly regulated, financial stocks may not be the biggest stock gainers. When exciting new cures are discovered or revolutionizing software is unveiled, the frontline companies may get all the glory—but remember who had the guts to invest in these ideas: banks. Consequently, investing in banking and finance is a great way to piggyback on market trends and global events without exposing yourself to frontline risk. Banks have a number of mechanisms in place to make sure they won’t topple easily.

Many financial institutions have been around for a while, and have a provable, steady history of growth. They also tend to issue great dividends, which is great for building passive income or accelerating portfolio growth through reinvestment. Though financial institutions are very tied into the market, they can easily ride out dips or crashes with government bailouts. Love it or hate it, governments have a vested interest in stabilizing their economy, and stabilizing the banks is an easy way to do that. That said, financial stocks are an excellent way to add some solid stocks to your portfolio, capitalizing on their stability and dividend payout.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Citigroup (C)$76.39flat2.67%11.49Buy$81.67
Ameriprise Financial (AMP)$167.44flat2.32%11.21Buy$176.43
JPMorgan Chase & Co. (JPM)$136.81flat2.63%15.20Hold$124.17
BlackRock (BLK)$498.61flat2.65%18.52Buy$508.70
Blackstone Group (BX)$53.63flat3.65%23.73Hold$53.38
Goldman Sachs Group (GS)$225.00flat2.22%8.90Hold$246.36
Credit Suisse Group (CS)$13.34flat1.95%15.88HoldN/A
Visa (V)$185.14flat0.65%34.03Buy$199.91
Mastercard (MA)$296.09flat0.45%45.62Buy$306.50

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