The financial services sector is set for significant growth this year, driven by factors like increasing wealth, demand for alternative investments, and the rise of fintech. As we all know, the financial sector lies at the heart of the global economy, I think investors could benefit significantly from buying robust financial stocks ORIX Corporation (IX), FLEETCOR Technologies, Inc. (FLT), and Jiayin Group Inc. (JFIN).
Despite earlier forecasts of an inevitable recession and tremors in the banking sector, the United States experienced a much brisker pace of growth than expected last year, coupled with a reassuring easing of inflationary pressures. Resilient consumers and a powerful labor market helped propel the economy through the last year. In the final quarter of 2023, GDP rose by 3.3%, surpassing the 2% Wall Street estimate.
Moreover, the financial services market is poised for growth, driven by the expanding wealth of high-net-worth individuals, growing demand for alternative investments, adoption of blockchain to combat fraud, increased investments by individual investors, and urbanization trends. According to a report by Research and Markets, the financial services market is projected to grow at a CAGR of 7.4% and reach $33.31 trillion by 2026.
Moreover, following the pandemic, there's been a notable uptick in the need for online financial services. The widespread adoption of Internet and mobile technologies has enhanced connectivity, expanding access to financial services to a wider demographic. Further, in the past decade, fintech has surged from obscurity to prominence in financial services, driven by technological advancements, digitization, changing customer preferences, and strong support from investors and regulators.
The global fintech market is expected to expand at a CAGR of more than 14% to reach $608.35 billion by 2029.
Furthermore, the Fed's recent actions to maintain high-interest rates have been bolstering the financial industry. However, with the Fed indicating a pause in rates and potential future cuts, lower interest rates could likely stimulate increased borrowing and investment activity in the sector.
With these favorable trends in mind, let's delve into the fundamentals of the three financial stock picks.
ORIX Corporation (IX)
Headquartered in Tokyo, Japan, IX provides diversified financial services internationally. The company operates through Corporate Financial Services and Maintenance Leasing; Real-Estate; PE Investment and Concession; Environment and Energy; Insurance; Aircraft and Ships; ORIX USA; and ORIX Europe.
IX’s trailing-12-month EBITDA margin of 34.08% is 64.4% higher than the industry average of 20.73%. Its trailing-12-month CAPEX/Sales of 46.26% is significantly higher than the 2.10% industry average.
The company distributes $2.96 annually as dividends, which yields 2.78% on the current market prices. Its four-year average dividend yield is 4.20%.
During the nine months that ended December 31, 2023, IX’s total revenues increased 2.2% year-over-year to ¥2.04 trillion ($13.58 billion). Net income and EPS, both attributable to IX shareholders, rose 3.4% and 5.3% from the prior-year period to ¥219.21 billion ($561.61 million) and ¥188.39, respectively.
Street expects IX’s EPS and revenue to rise 37.5% and 6.3% year-over-year to $11.77 and $20.16 billion in the fiscal year ending March 2025.
The stock has returned 20.7% over the past nine months, closing the last trading session at $106.27.
IX’s POWR Ratings reflect its promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
IX has a B grade for Momentum, Stability, and Sentiment. It is ranked #4 in the nine-stock Foreign Consumer Finance industry, which is rated A.
Beyond the POWR Rating grades we have stated above, we have also rated IX for Growth, Value, and Quality. Get all IX ratings here.
FLEETCOR Technologies, Inc. (FLT)
FLT is a business payments company that helps businesses spend less by enabling them to manage their expense-related purchasing and vendor payment processes. The company’s service portfolio includes corporate payment solutions, Virtual Cards, purchasing cards, travel and entertainment cards, and more.
FLT’s trailing-12-month EBIT and EBITDA margins of 44.09% and 53.05% are 100.5% and 154.2% higher than the industry averages of 21.99% and 20.87%, respectively.
On February 8, 2024, FLT announced its intention to implement a 10b5-1 plan to support its repurchase of up to $800 million worth of shares in 2024.
On February 7, FLT closed on an amendment to its credit facilities, increasing its capacity by $600 million. The revolver is now at $1.78 billion. It plans to use this for M&A and stock repurchases in 2024, maintaining existing interest rates and maturity terms.
FLT’s net revenue increased 9.6% year-over-year to $3.76 billion in the fiscal year ended December 2023. Its adjusted net income was $1.26 billion and $16.92 per share, up 1.8% and 5.1% from the previous year, respectively.
The company expects revenues between $925 million and $945 million and adjusted net income per diluted share to range from $4.02 to $4.12 in the first-quarter, ending March 2024.
Analysts expect FLT’s revenue and EPS for the fiscal first quarter (ending March 2024) to increase 4.5% and 8.4% year-over-year to $941.50 million and $4.12, respectively.
Over the past year, FLT’s shares have surged 30.7% to close the last trading session at $280.61.
FLT’s POWR Ratings are consistent with this rosy outlook. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It has a B grade for Momentum, Quality, and Sentiment. It is ranked #4 in the 99-stock Financial Services (Enterprise) industry.
Click here to see FLT’s additional Growth, Stability, and Value ratings.
Jiayin Group Inc. (JFIN)
Headquartered in China, JFIN offers online consumer finance services through a fintech platform. It connects individual borrowers with financial institutions for transparent and fast transactions. Additionally, it provides investment referrals, software development, risk control, marketing support, and IT assistance services.
JFIN’s trailing-12-month asset turnover ratio of 1.36x is 546.1% higher than the industry average of 0.21x. Its trailing-12-month ROTA of 28.71% is notably higher than the 1.09% industry average.
On January 31, 2024, JFIN paid a cash dividend of $0.10 per ordinary share or $0.40 per ADS. The company pays an annual dividend of $0.80, which yields 6.69% on the current market price, higher than the four-year average yield of 1.35%.
During the fiscal third quarter that ended September 30, 2023, JFIN’s net revenue increased 64% year-over-year to $1200.98 million. Its income from operation rose 23.8% from the year-ago quarter to $52.35 million. Moreover, the company’s net income and net income per ADS grew 30.6% and 31.1% from the prior year’s quarter to $44.40 million and $0.83, respectively.
The company anticipates facilitating loans worth around RMB20 billion ($2.78 billion) in the fiscal fourth quarter, based on current market conditions.
The stock has surged 94.5% over the past year and 12.9% over the past three months to close the last trading session at $5.70.
JFIN’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
JFIN has a B grade for Momentum, Quality, and Sentiment. It is ranked #2 in the Financial Services (Enterprise) industry.
In addition to the POWR Ratings just highlighted above, one can access JFIN’s Growth, Value, and Stability ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
IX shares were trading at $109.33 per share on Wednesday afternoon, up $3.06 (+2.88%). Year-to-date, IX has gained 17.07%, versus a 7.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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