Tops for 2021: 6 Best Financial Stocks to Buy

Financial stocks were one of the hardest-hit areas of the market in 2020. Already low interest rates hung over the sector at the start of the year. Then they were hobbled by the COVID-19 crisis and the resulting slash to near-zero rates. When the market bounced back, financials bounced less – it’s one of four sectors to remain in negative territory late in December.

But an investment in the market’s best financial stocks could pay off handsomely in 2021.

The sector has already rallied on the back of positive vaccine updates, given that a safe and effective vaccine would allow the economy to reopen. Additionally, the Federal Reserve just gave big banks the all-clear to resume share buybacks in the first quarter of 2021, ending a six-month ban.

“Consistent with a typical recovery, Banks should benefit from improving credit conditions, increasing transaction volumes, and a steepening yield curve,” writes Jonathan Golub, Chief U.S. Equity Strategist for Credit Suisse. “The group is adequately reserved, likely resulting in a greater return of capital. Sector valuations are extremely cheap and estimates conservative for the group as a whole.”

Just take care. While these developments are encouraging, the picture going into 2021 remains one of uncertainty as fears related to a new strain of the virus have spooked investors. As a result, the pros’ picks for 2021’s best financial stocks aren’t the big banks and insurance companies that you would expect. Instead, Wall Street’s focus has locked on to smaller financial names, including several outside of the traditional banking industry, that have a unique edge.

Read on as we unveil six financial stocks to buy for 2021. Using TipRanks’ database, we’ve found the most compelling plays in the space, according to the most up-to-date breakdowns from Wall Street’s analysts.

Data is as of Dec. 21. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of potential 12-month upside as implied by analysts’ consensus price target.

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HomeStreet logo
  • Market value: $721.4 million
  • Dividend yield: 1.8%
  • TipRanks consensus price target: $39.50 (19% upside potential)
  • TipRanks consensus rating: Moderate Buy

HomeStreet (HMST, $33.11) is a Seattle-based bank that offers consumer and commercial banking, mortgage lending, commercial real estate financing and other financial products across 67 offices on the West Coast and Hawaii.

HomeStreet, which has been delivering steady growth for years, reported a superb third quarter. Core net income jumped 112% year-over-year, to $1.23 per share, which easily beat expectations for 83 cents per share. Net interest margins climbed thanks to lower funding costs, and loan volume remained high.

B. Riley Securities analyst Steve Moss says that despite the recent rally in financial stocks, HMST still has “more room to run” and believes estimates are likely to be revised to the upside for 2021.

He also points out that, as the economy improves, credit costs should decline. Share repurchase activity should also increase, with loan growth expected to improve as well.

Moss, who rates the stock at Buy, boosted his price target from $36 per share to $40, giving the stock potential upside of 21% over the next year or so. Thus, while this diminutive bank might not normally pop up on many investors’ radars, it could be among the best financial stocks in 2021. For more analyst insights on HMST, take advantage of TipRanks.

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Flagstar Bancorp

Flagstar logo
  • Market value: $2.1 billion
  • Dividend yield: 0.5%
  • TipRanks consensus price target: $47.00 (20% upside potential)
  • TipRanks consensus rating: Strong Buy

Flagstar Bancorp (FBC, $39.20) isn’t your typical regional bank. While it does operate 160 branch locations throughout the Midwest, it also provides mortgages via a nationwide wholesale network, as well as via 89 retail locations in 28 states.

Like many smaller stocks, Flagstar doesn’t have a large group of covering analysts. But those following the stock are unanimously bullish, and a few have FBC among their top financial stocks for 2021.

B. Riley Securities analyst Steve Moss (Buy) recently bumped his 12-month price target up from $44 per share to $46. He cites “strong” mortgage banking fundamentals that could potentially fuel robust earnings into Q1 2021. That caused him to revise his Q4 2020 earnings estimates from $1.96 per share to $2.45; he forecasts EPS of $2.15 and $6.75 per share for Q1 2021 and full-year 2021, respectively.

Compass Point’s Giuliano Bologna (Buy) boosted FBC’s price target from $44 to $50, arguing that the company boasts a “unique combination” of exposure to the mortgage space as well as “very limited credit exposure.” Bologna also says mortgage gains in the near term could push its tangible book value higher.

FBC has six Buy ratings total, four of which have come in over the past three months. An average price target of $47 per share implies that shares could surge by 20% over the next 12 months. Check out other analyst ratings and targets on TipRanks.

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PROG Holdings

Progressive Leasing logo
  • Market value: $3.9 billion
  • Dividend yield: 0.3%
  • TipRanks consensus price target: $70.00 (22% upside potential)
  • TipRanks consensus rating: Strong Buy

PROG Holdings (PRG, $57.33) is a provider of lease-purchases solutions, which it provides via more than 30,000 retail partner locations and e-commerce sites across most of the country.

If the name isn’t familiar, however, that’s because PROG Holdings has only been trading in its current form for a couple of weeks. The company previously operated under the Aaron’s banner; that rent-to-own business was spun off at the start of December as The Aaron’s Company (AAN).

PROG Holdings has nonetheless been picking up bullish sentiment since the spinoff, including two Buy calls – one new, and one reiteration.

For Loop Capital analyst Anthony Chukumba (Buy), PROG’s commercial equipment finance and leasing services provider is a standout in the space based on the fact that it boasts a substantial total available market and its competition for national retail partners is relatively limited. He also thinks the company can deliver additional revenue growth by “fully integrating” its own platform with e-commerce channels offered by its current retail partners and via direct marketing to its customers.

Jefferies’ Ryan Carr (Buy) is also optimistic about this financial stock. According to the analyst, the company is a “pioneer in the virtual lease-to-own world” and is poised for gains in a “large market that remains underserved.”

All told, the stock has eight Buy ratings, according to S&P Global Market Intelligence. That includes five Buys issued over the past three months. Moreover, a $70 price target implies the stock could run another 22% over the next year, which should put it among the best stocks in the financial sector. For more information, check out the PRG analyst consensus and price target page on TipRanks.

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S&P Global

S&P Global logo
  • Market value: $76.9 billion
  • Dividend yield: 0.8%
  • TipRanks consensus price target: $404.44 (26% upside potential)
  • TipRanks consensus rating: Strong Buy

The biggest contender (by far) among 2021’s best financial stocks is S&P Global (SPGI, $319.85), which is one of the largest ratings agencies in the world. In addition to bond ratings, the $77 billion firm also provides market benchmarks, analytics and data to the capital and commodity markets worldwide.

Oppenheimer analyst Owen Lau tells clients that after conversations with S&P Global’s management, he is positive on SPGI’s recent merger with IHS Markit, even with the regulatory risks involved. 

“Management was quite confident that regulatory risks would be minimal given the only overlap is within INFO’s Opis and SPGI’s Platts,” Lau says. “Even with this, revenue overlap is ‘almost negligible.’ In fact, the lawyers working on the deal were ‘very surprised’ with the lack of overlap given the diversified businesses.”

The analyst says cost synergies could reach $480 million, and that “the market has under-appreciated the potential incremental synergies from Kensho, which will be deployed in the combined entity.”

“We recommend long-term investors take advantage of the current dislocation as the market continues to digest the risks/opportunities,” says Lau, who reiterated his Buy rating and $399 price target.

Investors also might know SPGI as a longtime Dividend Aristocrat – one that has upped its payout annually without interruption for 47 years. That includes a 17.5% hike at the start of 2020, to 67 cents per share.

SPGI has a “Strong Buy” analyst consensus by virtue of racking up nine Buys versus just one Hold over the past three months. Discover what the rest of the Street has to say about S&P Global.

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Customers Bancorp

Customers Bank logo
  • Market value: $569.1 million
  • Dividend yield: N/A
  • TipRanks consensus price target: $24.33 (35% upside potential)
  • TipRanks consensus rating: Strong Buy

Customers Bancorp (CUBI, $18.01) is the parent of Customers Bank, a “super-community” bank that offers consumer banking services, as well as commercial products such as commercial and industrial loans, Small Business Administration (SBA) guaranteed loans, real estate loans and more, along the I-95 corridor, as well as in Chicago.

However, the most exciting thing about the company has been its BankMobile (BM) mobile banking app, saying that since its creation in 2016, investors have been focused on the “timing and form of BM’s disposition.”

“BM has evolved from a tech-driven startup with no defined customer focus into an EBITDA-positive company with three clearly defined lines of business: 1) higher-end banking (based on the 2016 acquisition of Higher One and the announced 2021 partnership with Google Pay); 2) white-label banking (based on the 2019 partnership with T-Mobile Money); and 3) workplace banking (based on the 2020 partnership with BenefitHub),” the analyst says.

That technology, however, is going to combine with a special purpose acquisition company, Megalith Financial Acquisition Corp., to form a new company under the ticker BMTX. But does the remaining business have what it takes to stand out among 2021’s best financial stocks?

“In our view, standalone CUBI could achieve our 12-month price target of $27, which, at 9x our core 2021 EPS estimate, is consistent with the average 2021 P/E multiples of high-quality Small-Cap Banks that we follow,” Diana says, noting that credit quality continues to be strong. That prompted the analyst to raise his 2021 EPS estimate from $3 per share to $4.50, and to reiterate a $27-per-share price target, implying 50% upside potential.

Over the past three months, CUBI has received three Buy calls and an average analyst price target of $24.33. See other CUBI analyst ratings on TipRanks.

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LendingTree logo
  • Market value: $3.4 billion
  • Dividend yield: N/A
  • TipRanks consensus price target: $362.00 (38% upside potential)
  • TipRanks consensus rating: Strong Buy

LendingTree (TREE, $262.23) is an online lending marketplace for everything from mortgages and auto loans to small business loans and even credit cards. Since its founding 22 years ago, it has served more than $50 billion in loans and provided other services for more than 100 million customers.

The company’s recent Q3 results inspired confidence, beating expectations across the board thanks to strength in the insurance business as advertising and distribution spending continues to move to digital channels.

This solid showing was primarily driven by a 24% year-over-year gain in insurance revenue. Additionally, mortgage revenue was up 14% year-over-year, although some expected the trend to be stronger based on low interest rates.

LendingTree also delivered a disappointing fourth-quarter outlook, however, as the economic impact of COVID-19 continues to affect demand for extending new credit, specifically for products like personal loans and credit cards. But Needham analyst Mayank Tandon, who doesn’t dispute that the near-term guidance is “disappointing,” argues the subsequent selloff was “overdone.”

“We remain positive on the shares for long-term investors looking for exposure to a leading personal finance marketplace with prospects for 15-20% revenue growth and steady EBITDA margin expansion,” he says. “We also believe that TREE’s strong balance sheet and highly variable cost structure will help it weather the (near-term) challenges facing the business, particularly in the Consumer segment.”

Tandon, who has a Buy rating on shares, did trim his price target from $400 per share to $375, but that still implies upside of 43% from current prices, making it one of the best financial stocks for 2021, from a potential perspective.

TREE shares have enjoyed six Buy ratings and no Holds nor Sells over the past three months, and a $362 consensus price target means shares could run close to 40% higher over the next year. You can learn more about the analyst community’s views on LendingTree shares via TipRanks’ consensus breakdown.

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