The financial sector is much broader than just banks and credit cards. It covers businesses such as insurance, trading platforms, and asset management, as well as others.
Some of the best additions to a financials sector-based investment portfolio are names that the average investor may not be familiar with but that are strong players in lesser-known fields. Three of the financial stocks that are winners right now are CME Group (NASDAQ:CME), Synchrony (NYSE:SYF), and Brookfield Asset Management (NYSE:BAM).
1. CME Group
CME Group is the umbrella holding company for the Chicago Mercantile Exchange and Chicago Board of Trade (CBOT), which merged to become the leading platform for derivatives trading. The exchanges deal with futures and options, which means buyers purchase the right to trade certain commodities at specific prices.
The company had an excellent third quarter with revenue of $1.277 billion, a 41% increase year-over-year, with a 30% increase in average daily volume (ADV) year over year. International ADV increased by 40%.
Much of this growth was driven by political and economic uncertainty, with U.S.-China trade wars, various threatened tariffs, and Brexit on the horizon. When there is fear of instability and general ambiguity, people are swifter with their hedging activity and futures and options activity increases. That’s one of the features that makes CME Group an especially attractive buy in a fear-powered system, but attractive in any type of environment; it’s somewhat immune to changes in the markets.
But the company isn’t satisfied to do jus that. It consistently finds ways to increase efficiency and offer a better experience as well as introduce innovative products for its customers. As the economy continues to expand and the fear of a recession spreads along with it, CME Group is a pick for a diversified portfolio.
2. Synchrony Financial
Synchrony is a financial powerhouse that isn’t on most individual banking clients’ radars because its main business is issuing credit cards for other companies. It’s the bank behind branded credit cards for Amazon, Gap, American Eagle, and many more.
However, it also started a consumer banking division that has become very popular, and deposits in the third quarter of 2019 grew 6% to $66 billion.
Net earnings were up in the third quarter at over $1 billion, a 57% increase year over year, and it has a lean 30% efficiency ratio, which means it’s operating effectively. Synchrony took a hit last year when a dispute with Walmart caused the retail giant to pull out of its credit card contract, taking away a huge chunk of Synchrony’s business. But its other partnerships are solid, and their number keeps growing. These are some of the reasons that Warren Buffett has taken an interest in Synchrony as part of Berkshire Hathaway‘s holdings.
Upcoming, the company is issuing a Venmo credit card along with PayPal, which is scheduled for release in 2020. The company has a tiny price-to-earnings ratio of 6.6, but this is an exciting venture for the company, and investors can look for the market to like this move when it comes out.
3. Brookfield Asset Management
Brookfield Asset Management is an alternative asset manager, investing in infrastructure businesses like real estate and energy. It works with businesses in 30 countries and partners with those businesses to fully develop their operations, sustainability, and profits, so it has a material interest in their success.
Because of that, the company invests its own capital as well as client assets, and it employs a large team of financial professionals who go beyond evaluating and down into the trenches to lend their expertise in creating productivity.
These investments, plus increased capital raised from clients, gave the company almost $18 billion in revenue and $1.8 billion in net income in the third quarter of 2019. It’s definitely gaining from the current strong market, but because the company owns a lot of its assets, it has a more stable position in case of a downturn.
Share price has increased more than 50% this year and is in a good position to keep going, trading at 20 times earnings. Why would we assume it can? The company continues to raise large amounts of capital, with revenue from fees growing 35% in the third quarter year over year, and it sees high growth in its partnerships. As a well-managed company with a wise allocation of assets, Brookfield Asset Management should do well for its clients (and shareholders) in the coming years.