Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. But worries about economic uncertainty and potential market volatility have kept sentiment in check, and over the past six months, the industry has tumbled by 2.7%. This drop is a far cry from the S&P 500’s 10% ascent.
A cautious approach is imperative when dabbling in financials as many are sensitive to economic cycles and regulatory changes. On that note, here are three financials stocks we’re swiping left on.
MSCI (MSCI)
Market Cap: $45.05 billion
Originally known as Morgan Stanley Capital International before becoming independent in 2007, MSCI (NYSE:MSCI) provides critical decision support tools, indexes, and analytics that help global investors understand risk and return factors and build more effective investment portfolios.
Why Are We Wary of MSCI?
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Push for growth has led to negative returns on capital, signaling value destruction
MSCI is trading at $619.50 per share, or 30.1x forward P/E. If you’re considering MSCI for your portfolio, see our FREE research report to learn more.
Main Street Capital (MAIN)
Market Cap: $4.84 billion
With a focus on building long-term partnerships rather than quick transactions, Main Street Capital (NYSE:MAIN) is a business development company that provides long-term debt and equity capital to lower middle market and middle market companies.
Why Does MAIN Worry Us?
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5.5% annual revenue growth over the last two years was slower than its financials peers
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Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 3% annually
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Annual tangible book value per share growth of 6.4% over the last two years was below our standards for the financials sector
Main Street Capital’s stock price of $52 implies a valuation ratio of 13.1x forward P/E. Read our free research report to see why you should think twice about including MAIN in your portfolio, it’s free.
Nelnet (NNI)
Market Cap: $4.65 billion
Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE:NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.
Why Does NNI Give Us Pause?
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5.5% annual revenue growth over the last five years was slower than its financials peers
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Low return on equity reflects management’s struggle to allocate funds effectively
At $129.49 per share, Nelnet trades at 2.7x forward price-to-sales. To fully understand why you should be careful with NNI, check out our full research report (it’s free).