In this article, we’ll take a closer look at three financial stocks that could continue to do well in the coming months, including a value play with a solid balance sheet, a diversified ETF that tracks the global financial sector, and a payments giant with a dominant market share. Whether you’re a value investor, growth enthusiast, or dividend seeker, these three financial stocks should be on your radar in the second quarter. So let’s take a closer look at why they could deliver strong returns in the years to come.
Citigroup (C)
Leading the charge in our list of financial stocks is Citigroup (NYSE:C), which has been undergoing a strategic transformation under CEO Jane Fraser. Recent quarterly results showcase significant progress in simplifying operations and aligning around core businesses.
The bank reported first quarter 2024 results in mid-April. Revenue declined 2% year-over-year (YOY) to $21.1 billion. Similarly, net income was $3.4 billion, compared to a net income of $4.6 billion in the prior year quarter. The deterioration in the bottom line was driven by higher expenses, higher cost of credit and lower revenues.
Yet rising expectations of rate cuts and relatively robust GDP growth predictions for the US have increased expectations for an improved credit landscape, suggesting potential loan growth and an increase in investment banking activity in the coming months. Citigroup’s supply of funds is improving, in part driven by an increase in stable short-term deposits. As the bank capitalizes on its global footprint, Citigroup offers compelling upside potential for value-oriented investors.
As a result, Citigroup shares have delivered almost 19% year-to-date (YTD). With a forward rice-to-earnings (P/E) ratio of 10.9x and price-to-book ratio of 0.6x, they trade at a discount to peers. Meanwhile, analysts have a consensus 12-month price target of $65.50, implying an upside potential of 10.75% from current levels.
iShares Global Financials ETF (IXG)
Today’s second spot on our list of financial stocks goes to an ETF, namely the iShares Global Financials ETF (NYSEARCA:IXG). The fund provides access to a basket of leading financial companies worldwide, including banks, investment funds and insurance companies. With a 56% allocation to companies stateside and the remaining 44% invested in international financials, the fund offers broad global exposure.
IXG has been trading since 2001. It has 207 holdings, and tracks the S&P Global 1200 Financials Sector Index. The top 10 names of the ETF comprise around a third of net assets, which stand at $399 million. Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), JPMorgan Chase (NYSE:JPM), Visa (NYSE:V), Mastercard (NYSE:MA) and Bank of America (NYSE:BAC) head the list of holdings.
Year-to-date, IXG is up 7%, while the current dividend yield stands at 2.4%. The underlying holdings still trade at potentially attractive multiples, with a weighted average price-to-earnings ratio of 12.7x and a price-to-book ratio of 1.5x. In other words, these financial stocks could still enjoy potential positive returns as the global economy continues to recover. Those investors who anticipate a soft landing in 2024 could consider buying the dips in IXG. Finally, we should point out the annual expense ratio of 0.42%.
VISA (V)
We conclude our discussion on financial stocks with the largest payment network provider wordwide, Visa (NYSE:V). Fiscal first quarter results revealed revenue growth of 9% YOY to $8.6 billion, driven by robust growth in payment volume, cross-border transactions, and processed transactions. Net income came in at $4.9 billion or $2.39 per share, up 17% and 20% YOY, respectively.
Visa’s strong brand, robust free cash flow growth and shareholder-friendly policies make it an attractive investment opportunity for a wide range of investors. As a result, Visa stock is widely used to diversify portfolios with heavy exposure to higher-growth companies and is one of the holdings within Berkshire Hathaway’s portfolio. In addition to share buybacks, a modest 0.75% dividend yield and a track record of increasing payouts for 15 consecutive years also increases its appeal among investors.
Meanwhile, management has recently acquired the cloud-native payment platform specialist Pismo and Mexican payments processor Prosa. These moves underscore global growth opportunities driven by serving cloud-based clients and building financial networks in emerging economies.
Since the start of the year, Visa shares have gained over 4.5%. They trade at a potentially premium valuation compared to industry peers at a forward earnings multiple exceeding 26. Yet, analysts expect Visa’s stock to reach a price target of over $306 within the next 12 months, implying an upside potential of around 14% from current levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.