Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. These companies have benefited from improving market activity and economic fundamentals, so it’s no surprise the industry has posted a 15% gain over the past six months, nearly mirroring the S&P 500.
Regardless of these results, investors must exercise caution as many firms are sensitive to economic cycles and regulatory changes. On that note, here is one resilient financials stock at the top of our wish list and two we would avoid.
Two Financials Stocks to Sell:
Carlyle (CG)
Market Cap: $14.31 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 Are We Out on CG?
- 3.6% annual revenue growth over the last two years was slower than its financials peers
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.7% annually
At $40.33 per share, Carlyle trades at 9.8x forward P/E. To fully understand why you should be careful with CG, check out our full research report (it’s free).
Donnelley Financial Solutions (DFIN)
Market Cap: $1.18 billion
Born from the need to navigate increasingly complex financial regulations in the digital age, Donnelley Financial Solutions (NYSE:DFIN) provides software and technology-enabled services that help companies comply with SEC regulations and manage financial transactions and reporting requirements.
Why Is DFIN Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last five years
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 6.3% annually
Donnelley Financial Solutions is trading at $48 per share, or 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than DFIN.
One Financials Stock to Buy:
LPL Financial (LPLA)
Market Cap: $25.98 billion
As the nation's largest independent broker-dealer with no proprietary products of its own, LPL Financial (NASDAQ:LPLA) provides technology, compliance, and business support services to independent financial advisors and institutions who manage investments for retail clients.
Why Is LPLA a Top Pick?
- Market share has increased this cycle as its 33.9% annual revenue growth over the last two years was exceptional
- Share buybacks catapulted its annual earnings per share growth to 27.1%, which outperformed its revenue gains over the last five years
- ROE punches in at 37.1%, illustrating management’s expertise in identifying profitable investments
LPL Financial’s stock price of $331.43 implies a valuation ratio of 12.3x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.