Financial institutions play a critical role, offering everything from consumer banking to wealth management and specialized financial solutions. But uncertainty about fiscal and monetary policy has tempered enthusiasm, and over the past six months, the industry has pulled back by 2.7%. This drawdown is a noticeable divergence from the S&P 500’s 10% return.
Investors should tread carefully as many of these firms are also cyclical, and any misstep can have you catching a falling knife. Keeping that in mind, here are three financials stocks we’re passing on.
PayPal (PYPL)
Market Cap: $37.71 billion
Originally spun off from eBay in 2015 after being acquired by the auction giant in 2002, PayPal (NASDAQ:PYPL) operates a global digital payments platform that enables consumers and merchants to send, receive, and process payments online and in person.
Why Do We Think Twice About PYPL?
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Annual sales growth of 5.3% over the last two years lagged behind its financials peers as its large revenue base made it difficult to generate incremental demand
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Performance over the past two years shows its incremental sales were less profitable, as its 2.8% annual earnings per share growth trailed its revenue gains
PayPal is trading at $42.70 per share, or 7.9x forward P/E. Dive into our free research report to see why there are better opportunities than PYPL.
Carlyle (CG)
Market Cap: $15.67 billion
Founded in 1987 with just $5 million in capital and named after the iconic New York hotel where the founders first met, The Carlyle Group (NASDAQ:CG) is a global investment firm that raises, manages, and deploys capital across private equity, credit, and investment solutions.
Why Should You Dump CG?
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Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
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Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.1% annually
Carlyle’s stock price of $43.01 implies a valuation ratio of 9.6x forward P/E. If you’re considering CG for your portfolio, see our FREE research report to learn more.
Morgan Stanley (MS)
Market Cap: $344.3 billion
Founded in 1924 during the post-WWI economic boom by former JP Morgan partners, Morgan Stanley (NYSE:MS) is a global financial services firm that provides investment banking, wealth management, and investment management services to corporations, governments, institutions, and individuals.
Why Does MS Fall Short?
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Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6.1% over the last five years was below our standards for the financials sector
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Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.3% annually
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Sizable asset base leads to capital growth challenges as its 5.8% annual tangible book value per share increases over the last five years fell short of other financials companies