When world events hit the news, investors start to get nervous. Will a Mid-East airstrike push stocks lower, or oil higher? Will the change last, or will trading revert to normal after a few days? These normal questions, but they can sometimes push rational investors into irrational trades.
CNBC crunched some numbers on the effects of world events and financial market price movements, and found an interesting patter for stock investors. Using data covering the past 30 years, the analysis showed that after oil, stocks show the best positive gain from “crisis trades.” For stocks purchased one day before an event occurred, the average return on the S&P 500 was 0.9% after one month – and 2.8% after three months.
That’s a pattern to keep in mind, after news of the US airstrike in Baghdad that killed a top Iranian general. Importantly, major investment banks are giving similar advice to their clients. In a published note, Evercore ISI said to investors, “Barring an escalation, the backdrop for equities remains favorable.”
Of course, the news is like lightning, and you never know when it will strike – so it’s best to be prepared, and keep your portfolio loaded up with stocks that show plenty of upside. We’ve used the TipRanks Stock Screener to sort over 6,400 publicly traded equities, setting the filters to show us small- to mid-cap companies, with Strong Buy consensus ratings, and upwards of 20% growth potential. Here are the results – three financial stocks that some of Wall Street’s best analysts are recommending.
First up is Focus Financial Partners, a wealth management firm that went public in summer of 2018. Focus provides investment management for independent firms, with a partnership arrangement. Focus’ model offers economies of scale in asset management, asset allocation, financial planning, and tax preparation to its partners.
The company’s earnings have showed gains in every quarter reported since the IPO, and beaten the forecasts in three of the last four. In Q3 2019, the most recent reported, the company posted total revenues of $316.6 million, for a year-over-year gain of 34%. At the bottom line, the adjusted EPS, at 62 cents, also showed a 34% yoy gain. It was a good report, and prompted management to reiterate the company’s 20% annual growth target.
5-star analyst Daniel Perlin, of RBC Capital, sees plenty of reason to believe that FOCS will continue growing. In his analysis of the firm’s strengths, the analyst noted, “The ability to accelerate organic growth at acquired firms. Focus’s services can often lead to accelerating revenue growth at acquired firms, in our estimation. In 2017, 55 partner firms utilized an average of at least four of Focus’s value-added services. Furthermore, partially reflecting these services, the annual revenue growth of acquired partner firms accelerates from a year 1 average of 5.7% to 9.5% by year 5.” Perlin’s Buy rating on FOCS is backed by a $37 price target, indicating confidence in 26% upside growth over the coming 12 months.
Also writing for the bulls, Jefferies analyst Gerald O'Hara says, "Although organic growth will remain near-term volatile as the Company scales, FOCS' established platform in the fragmented and consolidating wealth mgmt universe is unique and differentiated. The ability to drive LT growth, offer resources, and steadily increase earnings 20%+ per annum is unique and will drive deleveraging. FOCS is positioned to be a partner of choice within a growth market with upside to current valuations." O'Hara rates FOCS shares a Buy alongside a price target of $34.
All in all, Focus Financial maintains its Strong Buy consensus rating with 4 recent analyst reviews – including 3 Buys and 1 Hold. Shares are modestly priced, at $29.83, and the $37.25 average price target suggests an upside of 25%.
The “too big to fail” banks get the headlines, but smaller regional banks are taking up a large and growing part of the industry market share. Sterling Bancorp is one such company. Based in New York and serving the metropolitan New York City area along with the Hudson River Valley through its Sterling National Bank subsidiary, the company caters to small businesses and individuals. Sterling may be a smaller bank, but the company still has a market cap of $4.24 billion, and the bank controls assets exceeding $31.3 billion.
Sterling offers investors plenty of inducement. For starters, STL shares gained 27% in 2019, and to add income to share appreciation, the company pays out a modest 1.3% dividend. Furthermore, the earnings show that this growth is sustainable: the company’s most recent quarterly earnings, for Q3 2019, reported strong numbers. The EPS of 59 cents beat the forecast by over 9%. Revenues also beat the estimates, and hit $268.09 million. The company boasted a 15% gain in commercial loan business.
Writing from B. Riley FBR, 4-star analyst Steve Moss says, “We expect Sterling Bancorp 2020 results will show significant improvement over 2019 as the bank's balance sheet transformation generates higher quality earnings… STL's stock has outperformed peers in 2019... Our Buy rating reflects STL's attractive franchise, strong growth prospects as accretion runs-off, and attractive valuation at 10.1x our 2020 estimate of $2.10 and 10.9x our ex-accretion estimate of $1.95.”
Moss backs up his Buy rating and optimistic forecast with an aggressive $26 price target indicating a 24% upside potential.
Sterling’s analyst consensus rating is unanimous – the stock has received 5 positive reviews in the past two months. Shares are price at an affordable $20.51; the average price target of $26.30 suggests an upside potential of 28%.
MGIC, whose initials are an abbreviation of ‘Mortgage Guaranty Insurance Corporation,’ lives in the home-loan niche. A strong economy and rising wages have been good to MGIC; the company provides private mortgage insurance, and sales naturally go up in good times.
A strong third quarter demonstrates MGIC’s favorable position. Revenues gained 9.6% year-over-year and reached $318.4 million, while EPS – although flat yoy at 48 cents – beat the estimates by 12%. The company’s premium income grew 7% in the quarter, and investment income gained 17%. Even better for MTG, the company saw a 31% year-over-year increase in new insurance written. That important metric came in at $19 billion.
There were other growth indicators, which taken together put MGIC on a firm foundation. Employment and wages are rising, and housing demand with them. But also, delinquency rates are down as borrowers are better able to afford their home loans. Overall, the generally positive industry atmosphere has pushed MTG to a 31% 12-month gain.
Weighing in from MKM Partners, 5-star analyst Harry Fong wrote of MTG, “New insurance written increased nearly 32% this quarter aided by stronger refinancing activity that also purchase mortgage insurance. Given the current low interest rate environment, refi’s jumped in the quarter. That not only benefited net earned premiums, but also new business… Looking ahead, there continues to be ample talk from Washington about changing our mortgage system that may allow for more growth in the private sector, but nothing done yet. In time, we do expect to see more growth as the folks in Washington begin to introduce changes to the current marketplace.”
Fong showed his bullish side with a Buy rating on the stock and a price target of $18. His target implies a potential upside of 28%.
With an average price target of $17.63 and a current trading price of $13.91, MTG shares show a potential for 27% upside growth this year. The stock has a Strong Buy consensus rating based on 4 reviews – 3 are Buys and 1 is a Hold.
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