If any sector has been battered hard, the financials can certainly be included. The good news for investors, especially shareholders that held positions during the massive selling over the past month, is that many of the top companies in the sector are in much better shape than 12 years ago during the global financial crisis. Back in 2008, we saw well-known and long-tenured financial companies like Lehman Brothers and Bear Stearns go out of business or bought for pennies on the dollar. The balance sheets are in much better shape in 2020, and many of the top companies are in superb shape businesswise as well.
Merrill Lynch screened the financial sector looking for quality stocks rated Buy that pay what they call “defensible” dividends. In other words, dividends that are safe and not stretched on a percentage payout basis. We picked the four highest yielding companies, and all are outstanding buys now for long-term growth and income accounts.
Insurance companies tend to do well regardless of the economy, and this industry giant may be an outstanding pick-up for investors. Allstate Corp. (NYSE: ALL) is the largest publicly traded personal lines insurance company, with about 12% of the personal lines market (one in eight households).
Allstate is primarily a direct writer. Besides a full array of personal lines P/C products (preferred, standard and nonstandard auto insurance, and homeowners’ insurance), the company also offers life insurance and annuity products.
Shareholders are paid a 2.95% dividend. The whopping Merrill Lynch price objective of $134 for the shares compares with the $122.13 Wall Street consensus target. Allstate stock closed Tuesday’s trading at $77.92, up over 6% on the day.
Fifth Third Bancorp
This top super-regional bank is incredibly cheap right now after being hammered during the sell-off. Fifth Third Bancorp (NASDAQ: FITB) operates as the ninth largest diversified financial services company in the United States, with 1,207 full-service banking centers and 2,551 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina.
Its Commercial Banking segment offers credit intermediation, cash management and financial services; lending and depository products; and cash management, foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing, and syndicated finance for business, government and professional customers.
The Branch Banking segment provides a range of deposit and loan products to individuals and small businesses, including checking and savings accounts, home equity loans and lines of credit, credit cards and loans for automobiles and personal financing needs, as well as cash management services for small businesses.
The Wealth & Asset Management segment provides various investment alternatives for individuals, companies and not-for-profit organizations. It offers retail brokerage services to individual clients and broker-dealer services to the institutional marketplace. This segment also provides asset management services; holistic strategies to affluent clients in wealth planning, investing, insurance and wealth protection; and advisory services for institutional clients comprising states and municipalities.
Shareholders receive a massive 7.76% dividend. The Merrill Lynch price objective is $34, while the consensus price target is $29.59. The last trade on Tuesday came in at $14.41, up an incredible almost 18.5% on the day.
This financial services giant is offering the best entry point in years. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise, and the firm continues to be a dominant force around the world in the world of finance.
Its Investment Banking segment provides financial advisory services, including strategic advisory assignments related to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs; middle-market lending, relationship lending and acquisition financing; as well as transaction banking services.
This segment also offers underwriting services, such as equity underwriting for common and preferred stock and convertible and exchangeable securities, and debt underwriting for various types of debt instruments, including investment-grade and high-yield debt, bank and bridge loans and emerging- and growth-market debt.
Goldman Sachs Global Markets segment is involved in client execution activities for cash and derivative instruments; credit products; mortgages; currencies; commodities; and equities; and provision of equity intermediation and equity financing services. It also offers clearing, settlement and custody services.
Shareholders receive a 3.7% dividend. The price target at Merrill Lynch is a surprisingly low $154. The consensus target is $250.11, and Goldman Sachs stock rose nearly 14% on Tuesday to close at $153.60 a share.
This is another of Wall Street’s white-glove firms, and it may be among the best buys in the banking and investment arena. Morgan Stanley (NYSE: MS) is a global investment bank with leading positions in investment banking (M&A and equity underwriting), equity trading and wealth management, which contributes nearly 50% of firmwide revenues. The firm also has an asset management business, which adds to the lower-risk business profile the firm has pursued since the financial crisis.
Last month, Morgan Stanley agreed on a $13 billion purchase of discount brokerage E-Trade. With 5.2 million customers, it was once a revolutionary platform that “helped usher in a dramatic shift among financial services firms” and fueled the rise of indexes and exchange-traded funds, making investing vastly easier for do-it-yourself investors. The deal is still expected to close.
Investors receive a 4.21% dividend. Merrill Lynch has set a $32 price target. The consensus price objective is much higher at $55.71. Morgan Stanley stock closed at $33.22 a share after rising almost 20% on Tuesday.
All four of these top stock picks are trading well below the 52-week highs, and all boast extremely reasonable valuations after the huge sell-off. They make good sense for growth and income portfolios looking to add solid companies that have the potential for good moves higher over the rest of 2020.