It may not be the most exciting sector in which to invest, compared to tech and biotech. However, the best financial services stocks can offer a layer of stability to an investor’s portfolio like no other. But why?
First, the industry itself is a multiplier of money. Firms compete for the best opportunities to expand investments while using cash to leverage future growth.
Moreover, the financial services industry is deeply reliant on broader economic trends to remain solvent. Thus, with a global economic slowdown and a recession of some kind in the U.S. may be on the horizon. Thus, choosing the correct stocks in the sector is key to maximizing profits.
To find them, investors should focus on the strategic moves made by financial services companies. They continuously provide both benefits to customers and returns to shareholders. So, let’s break down three of the best financial services stocks to watch as the industry navigates the aforementioned economic challenges.
American Express (AXP)
As the cost of living soars across developed countries, credit card companies like American Express (NYSE:AXP) will become increasingly central to consumer’s lives. After all, the chance to stretch finances provided by credit cards makes living month to month somewhat easier for some.
To capitalize even further on its relationships with vendors and customers, AXP is continuing to expand the offerings of its digital advertising platform. Through sharing consumer data with advertisers and vendors, the company aims to develop a niche for personalized ads directly to AXP card users. This comes as the company reports that “52% of Amex Offers redeemers in the U.S. were GenZ or Millennial Card Members. Amex Offers drove $9.8 billion in spend to U.S. merchants who ran on the Amex Offers platform.”
As the company continues to leverage its customer base for new ways to make money, investors in AXP stock will surely be rewarded.
Berkshire Hathaway (BRK-A, BRK-B)
In the days leading up to Monday’s market rout, Warren Buffett sold half of all of Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) holdings in Apple (NASDAQ:AAPL) and some of its stock in Bank of America (NYSE:BAC) to sequester away $75.5 billion in stock for the period, resulting in a total of $276.9 billion in cash reserves for the asset management giant.
For investors, this hints that Buffett may be uncomfortable with the current economic picture in the U.S. May he be preparing for a buying opportunity if and/or when the market crashes? Also, it highlights strategic thinking that has made Berkshire Hathaway such a valuable stock over the years. And under Buffett’s management, protecting portfolio stability and trajectory over time is key.
Therefore, buying shares of BRK-B could be exceptionally lucrative in the long-term, as long as Buffett is calling the protectionary shots to keep shareholders safe.
Visa (V)
Much like American Express, Visa (NYSE:V) has much to gain from a financially constricted consumer base in the U.S. As a provider of credit cards, Visa makes all of its money from the usage of those cards through assessment fees.
Considering that Americans continue to rely on credit cards to make ends meet, the company will continue to see growth in revenue from assessment fees. Furthermore, with 60% of adults using credit cards to buy groceries in 2023, the reality of America’s reliance on Visa’s products only continues to expand.
Though it may be a bleak reason to invest in Visa, it’s important to remember the company does not service or own any of the debt created by its cards. Thus, it’s not on the hook for the $1.14 trillion in consumer credit card debt in the U.S. This means its profits and business model are relatively risk-free, as it doesn’t need interest and principal payments to generate revenue.
On the date of publication, Viktor Zarev 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.