| Stock | Price | 52 Week Range | Marketcap | EPS | Dividend Yield | Chart (24H) | Sector | Employees | Last Updated |
|---|---|---|---|---|---|---|---|---|---|
| $206.36 | 117.40B | 5.17 | 0.00% | Technology | 42,000 | 11 seconds ago | |||
 MSCI Inc. MSCI | $605.64 | 47.46B | 15.24 | 1.06% | Financial Services | 5,858 | 18 seconds ago | ||
| $237.71 | 85.66B | 9.52 | 4.36% | Financial Services | 3,565 | 34 seconds ago |
When most investors hear “financial stocks,” their minds often jump straight to traditional banks. These banks are constantly in the headlines, grappling with the unpredictability of credit risks and financial turbulence. But there’s a hidden gem in the realm of financial investments that often flies under the radar—financial services stocks. Unlike banks, which are prone to financial blowups during economic downturns, financial services companies operate like toll booths, effortlessly collecting fees while minimizing exposure to financial volatility. This fundamental difference presents a compelling argument for considering financial services stocks as they embody a robust risk-reward investment opportunity.
These companies consistently generate substantial returns on invested capital, channeling surplus cash back to investors via strategic buybacks. This modus operandi not only makes them more resilient to economic downturns but also positions them as favored picks for long-term growth. In today’s market, these stocks are considered bargain buys, signaling a not-to-miss opportunity for investors aiming to achieve superior returns with reduced risk.
Editor's Note: Analysis and insight for this article were originally sourced from our friends at InvestorPlace
1. Fiserv (FI)
Fiserv (FI): Surging with Clover – Dominating and Delivering Substantial Buybacks
Fiserv carves out dominance in three main areas: merchant acceptance, core banking software, and issuer processing services. This diversification in highly lucrative segments has furnished Fiserv with unassailable competitive advantages, bolstered through decades of strategic investment and expansion. The result? Thirty-eight consecutive years of double-digit earnings growth.
Clover Spearheads Growth
At the heart of Fiserv’s operational prowess lies Clover. This budding financial technology outpaces competitors like Square, having facilitated transaction volumes of $261 billion in 2023 compared to Square’s $210 billion. Not only does this underscore Clover’s superior growth trajectory, but it also fortifies Fiserv’s market position.
Investment Thesis: Robust Growth and Lucrative Buybacks
Fiserv has demonstrated robust free cash flow capabilities, with aggressive share buybacks accentuating its financial commitment to shareholder value. Repurchasing over $1 billion worth of shares in each quarter of 2023, including a staggering 10.2 million shares for $1.5 billion in Q1 2024 alone, is a testament to this strategy. Coupled with an organic revenue growth guidance sitting between 15-17% and earnings growth forecasted at 14-16% for 2024, Fiserv is an attractive buy trading at a mere 17x forward P/E. For growth-oriented investors, this signifies a golden opportunity.
Analyst Ratings for Fiserv
| Consensus Rating | Average Price Target | Current Price | Potential Gain | Number of Ratings |
|---|---|---|---|---|
| Strong Buy | $176.22 | $149.04 | 17.08% | 35 |
Analysts’ Outlook Summary
Analysts are highly optimistic about Fiserv, with most ratings being Strong Buy or Buy. The stock has a consensus rating of Strong Buy, indicating that analysts predict significant growth in the short to mid-term future. The average price target is $176.22, reflecting a potential increase of 17.08% compared to the current price of $149.04.
2. MSCI (MSCI)
MSCI (MSCI): Undervalue No More – Capitalize on Passive Management Trends
MSCI stands tall in the financial landscape, providing indispensable data, software, and market indices. This is particularly vital to asset owners and managers who rely on MSCI’s offerings for portfolio analyses, performance measurement, and result display. The shift from active to passive funds has only amplified the importance of benchmarks, making MSCI’s indices crucial in today’s investment climate.
Navagating Passive Fund Trends
As the investment world pivots from active to passive funds, MSCI’s indices only grow in importance. This shift underscores a robust, predictable revenue model—a crucial factor for discerning investors. This market index business now accounts for 60% of revenues and builds 80% of the company’s operating profit. Given this solid foundation, MSCI’s market leadership, especially in international markets, positions it as a robust player in the financial services landscape.
Investment Thesis: Attractive Valuation and Future Potential
Over the years, MSCI has grown its revenues impressively, from $996 million in 2014 to $2.5 billion in 2023, with EBITDA margins climbing from 41% to a striking 60%. Despite a 12% slide year-to-date, MSCI still shines brightly as a buy, trading at 33 times forward earnings—significantly under the five-year average P/E of 44. The margin improvement prospects combined with the potential for accelerated buybacks enhance MSCI’s appeal. It stands as a beacon for investors looking for strong, reliable returns in a fluctuating market.
Analyst Ratings for MSCI
| Metric | Value |
|---|---|
| Consensus Rating | Moderate Buy |
| Average Price Target | $568.38 |
| Current Price | $481.75 |
| Potential Gain | 17.98% |
| Number of Ratings | 11 |
Summary of Analyst Outlook:
MSCI Inc. has a consensus rating of Moderate Buy, indicating a generally positive outlook. The average price target of $568.38 suggests that analysts expect the stock to increase by 17.98% from its current price of $481.75. The potential gain aligns with the positive sentiment expressed in the consensus rating and analyst recommendations.
CME Group (CME): Dominating the Futures Market – Cash Flow King
CME Group is a powerhouse in centralized exchanges for trading and hedging a myriad of assets. Its business model fosters a balanced economic exposure, accumulating fee income without levering substantial capital expenditure risks. This advantageous position, combined with expanded trading volumes, has enabled CME to sustain high free cash flow and exceptional EBITDA margins of 68% as of 2023.
Resilient Revenue Streams
CME’s business environment thrives on consistent transaction volumes, benefiting from enhanced data access, swifter execution, and decreased trading fees. This unyielding revenue generation model provides sturdy economic scaffolding, making CME a reliable investment. Businesses need to hedge risks and perform transactions securely and on a wholesale basis, and CME serves these needs impeccably.
Investment Thesis: Shareholder Rewards and Growing Volumes
CME has consistently rewarded shareholders through buybacks and special dividends, highlighted by the $1.9 billion annual variable dividend issued in December 2023. With a compounded annual revenue growth rate of 5% over the past five years and impressive margins, CME’s model of earning fees from transactions without taking on leverage or operational risk is precariously well-timed. As trading volumes continue to burgeon, CME Group stands to reap considerable benefits, further strengthening its stature as an attractive high-return investment opportunity.
Analyst Ratings for CME Group
| Metric | Value |
|---|---|
| Consensus Rating | Moderate Buy |
| Average Price Target | $220.80 |
| Current Price | $196.12 |
| Potential Gain | 14.67% |
| Number of Ratings | 18 |
Summary of Analysts’ Outlook
Analysts have a moderate buy rating, which is a hold rating based on the consensus of 18 Wall Street analysts. This means that while there is some optimism about the stock, the overall sentiment is neutral. The highest analyst price target is $250.00, while the lowest is $187.00. The average price target represents a potential increase of 14.67% from the current price. Additionally, the average target price in the past three months is $225.25, indicating some stability in the overall market sentiment.
With a keen eye on financial services stocks, investors can leverage the unique income-generation models of firms like Fiserv, MSCI, and CME Group. By operating as fee-based income generators while maintaining minimal balance sheet risks, these companies offer formidable growth prospects and stability. For those intelligent enough to look beyond traditional bank stocks, these financial services entities represent a gold mine waiting to be explored.
