The finance sector’s performance has been quite bumpy in 2018. The year started on an optimistic note with expectations of substantial gains from lower tax rates, rising rate environment, improving economy and potential easing of stringent regulations.
However, a number of factors — including the U.S.-China trade war, Brexit-related uncertainty, fears of global economic slowdown, changing yield curve and the Federal Reserve’s stance related to interest rate hikes — eventually offset the positives.
As a result, the Zacks Finance sector has declined 18.9% year to date versus the Zacks S&P 500 composite’s loss of 12%.
Year-to-Date Price Performance
Despite the challenging operating backdrop, some finance stocks performed better than the sector in 2018. This was primarily attributable to these companies’ ability to capitalize on the positives better than others. Consequently, investors showed confidence in them.
What to Expect from Finance Sector in 2019?
Finance stocks are one of the biggest beneficiaries of higher interest rates. A rising rate environment is expected to remain a catalyst for the sector participants next year as well.
Moreover, the Fed’s actions indicate an improving domestic economy, which is one of the key performance drivers for finance stocks. Further, the Tax Cut & Jobs Act, which helped finance stocks significantly this year in improving their earnings, is expected to aid earnings growth in the next few quarters as well.
Also, as the stringent regulations are expected to ease further, finance stocks are anticipated to benefit more from the business flexibilities. If the central bank’s latest proposal to raise the threshold for ‘systemically important financial institution’ (SIFI) to $250 billion in assets from the current $50 billion gets approved, compliance costs for some companies will come down. Smaller companies, therefore, will be able to utilize the freed-up capital to generate additional revenues.
Nonetheless, uncertainties related to the U.S.-China trade war, expectations of global economic slowdown and Brexit-related issues are expected to adversely impact the performance of finance stocks in 2019 as well. Furthermore, investors must keep an eye on the yield curve, which has flattened this year.
Potential Winners of 2019
Based on business strength and solid earnings growth expectations, we have shortlisted some finance stocks that have outperformed the sector so far this year. Also, these stocks are expected to continue their winning streak in 2019 because of their top Zacks Rank.
We have taken the help of the Zacks Stock Screener to select stocks that have a market cap of more than $5 billion and currently carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are the four finance stocks for your consideration:
Shares of CME Group Inc. CME have gained 21% year to date. With a market cap of $60 billion, the company operates contract markets for the trading of futures and options. The stock currently has a Zacks Rank of 2. Further, the company’s earnings are expected to grow at a rate of 8.7% in 2019.
Year-to-Date Price Performance: CME
Arthur J. Gallagher & Co. AJG has a market cap of $12.7 billion and carries a Zacks Rank #2. Shares of the company, which provides insurance brokerage, consulting and third-party claims settlement and administration services, have rallied 9% so far this year. The company’s earnings are projected to grow at a rate of 13.6%.
Year-to-Date Price Performance: AJG
Credit Acceptance Corporation CACC currently sports a Zacks Rank #1 and has a market cap of $6.9 billion. The company provides financing programs, and related products and services to independent and franchised automobile dealers. The stock has appreciated 10.5% year to date and its 2019 earnings are expected to be up 6.9% year over year.
Year-to-Date Price Performance: CACC
Shares of Brown & Brown, Inc. BRO, which markets and sells insurance products, have gained 1.3% so far this year. The stock, with a Zacks Rank of 2, has a market cap of $7.3 billion. The company’s 2019 earnings are expected to climb at a rate of 9.8%.
Year-to-Date Price Performance: BRO
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
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