1 Financials Stock with Exciting Potential and 2 We Brush Off

Financial institutions play a critical role, offering everything from consumer banking to wealth management and specialized financial solutions. But worries about economic uncertainty and potential market volatility have kept sentiment in check, and over the past six months, the industry’s return was flat while the S&P 500 climbed by 10.9%.

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 is one resilient financials stock at the top of our wish list and two we’re steering clear of.

Two Financials Stocks to Sell:

Invesco (IVZ)

Market Cap: $12.62 billion

With roots dating back to 1935 when it pioneered the first mutual fund with an objective of capital growth, Invesco (NYSE:IVZ) is a global asset management firm that offers investment solutions across equities, fixed income, alternatives, and multi-asset strategies.

Why Are We Out on IVZ?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 1.1% annually
3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Invesco is trading at $28.50 per share, or 10.5x forward P/E. If you’re considering IVZ for your portfolio, see our FREE research report to learn more.

Moelis (MC)

Market Cap: $5.00 billion

Founded in 2007 by veteran banker Ken Moelis during the lead-up to the financial crisis, Moelis & Company (NYSE:MC) is an independent investment bank that provides strategic and financial advisory services to corporations, financial sponsors, governments, and sovereign wealth funds.

Why Do We Think Twice About MC?

1. Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.8% annually while its revenue grew
2. Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 3.5% annually over the last five years

At $67.25 per share, Moelis trades at 19.9x forward P/E. To fully understand why you should be careful with MC, check out our full research report (it’s free).

One Financials Stock to Watch:

Affiliated Managers Group (AMG)

Market Cap: $8.00 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 Does AMG Stand Out?

1. Share repurchases have increased shareholder returns as its annual earnings per share growth of 18.6% exceeded its revenue gains over the last two years
2. Industry-leading 21.3% return on equity demonstrates management’s skill in finding high-return investments

Affiliated Managers Group’s stock price of $301.81 implies a valuation ratio of 8.4x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.

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