All Eyes Are on the Banks, But Here are My Top-Ranked Financials
One of the four most exciting times of the year for investors kicked off yesterday as the biggest banks in the country reported quarterly results.
What’s that you say? Earnings are confusing… even boring?
Yeah, I can see that. But I’m enough of a stock nerd to love earnings season. And I’m enough of a quantitative analyst to want as much data as possible to make the smartest decisions… and make the most money.
Years ago, steelmaker Alcoa (AA) sat in the pole position for earnings season, but nowadays financials lead the way.
Three of the Big Four banks released their results yesterday. These are the banks with more than $1 trillion in assets. JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) all beat earnings and expectations, and Bank of America (BAC) reports on Tuesday.
While they are successful, banks typically don’t light up the rankings in my Quantum Edge system. Other, better-positioned stocks do.
That’s not to say banks are garbage stocks. Those four have all have done well, outperforming the S&P 500’s 23.5% gain in the massive run that started in November. That’s not surprising in a time of higher interest rates.
Those banks also have similar Quantum Scores, averaging 70.3. And yes, that is technically (but barely) in the range I like to buy between 70 and 85.
The problem is that high Quantum Score is powered mostly by strong technical ratings, which can be fleeting. To gauge a stock’s full potential, we also need to look at the fundamentals, and that’s where banks typically fall short.
Those four banks’ average Fundamental Score is 60.4. That’s not horrible, but it’s not the kind of strength I typically like to see.
My algorithms penalize companies that have a lot of debt, which big banks typically do – especially if they provide loans and credit. I understand it’s part of their business model, but my data shows that leveraged companies are less likely to produce the kinds of profits we’re after.
In fact, looking at the list of Top 20 financial stocks in my Quantum Edge system, I don’t see even one bank on the list.
The highest-ranking financial stocks with the biggest upside potential are more often those not weighed down by debt. These are financial technology (fintech) companies, brokerages, money managers, insurance companies, and the like.
Let me share the three highest-scoring true financials right now…
Apollo Global Management (APO)
Source: TradeSmith Finance and MAPsignals.com
Apollo Global Management (APO) is well-known private equity firm that manages investments and invests in credit, private equity, and real estate markets. It has $651 billion under management.
It’s a complicated business, and that’s where quant analysis helps us sort through everything to see just how strong the business is and how well the stock is trading.
You can see from the scores that APO is firing on all cylinders. Its 82.8 Quantum Score puts it in the buy zone, and the fundamental and technical ratings are equally powerful at 83.4 and 82.4, respectively.
Sales and earnings are growing rapidly. And while the debt is 57.6% of equity, that’s much easier to accept than something like JPMorgan’s debt-to-equity ratio of 208.8%.
As regular Power Trends readers know, one key to my analysis is tracking the flows of Big Money. And Big Money has been active in APO. My system spotted 17 buy signals since the middle of last November.
Raymond James Financial (RJF)
Source: TradeSmith Finance and MAPsignals.com
Raymond James Financial (RJF) is probably a familiar name. It has been around for more than 60 years and now has more than 8,700 financial advisors. It also provides banking, asset management, and capital markets services to companies, institutions, and municipalities.
That may not sound like the most exiting business, but it’s working, as you can see by that 77.6 Quantum Score. The fundamentals and technicals are nicely balanced, also in the 70s.
Earnings grew 30.4% over the last three years, with analysts estimating another 17% jump this year. Debt is low at just 39.3% of equity, and the stock is attractively valued at 12.9 times future earnings.
My system picked up four Big Money buy signals in just the last three weeks, so institutions and hedge funds are paying attention to RJF right now.
Progressive Corporation (PGR)
Source: TradeSmith Finance and MAPsignals.com
Progressive Corporation (PGR) has the best marketing department with its recognizable commercials. Flo and the gang helping customers bundle their insurance. Dr. Rick helping folks not turn into their parents. The red flag instant replay review helping see who really said what.
They are pretty amusing… and they must be working.
Sales increased 25.2% and 13.7% over the last one and three years, with earnings shooting up 11.8% and 111.8% in those same times. Analysts forecast 67% earnings growth in the current fiscal year.
And here again, debt is not a concern at just 34.8% of equity.
Big Money has been all over this stock in 2024. I count 19 buy signals as PGR has gained nearly 30% in a solid uptrend.
Source: MAPsignals.com
Financial companies lead the way in reporting earnings. They are critical to our economy and our markets, and most do well in times of higher interest rates.
But they don’t lead the way in quantitative rankings. I’m not recommending you avoid banks, but if you want to own them, you need more qualitative reasons or perhaps like their typically juicy dividends.
Data clearly shows that the highest-rated stocks – the stocks with the strongest businesses, price momentum, and Big Money support – are more likely to earn bigger profits over time.
I designed my Quantum Edge system to be agnostic when it comes to business models. I just want it to analyze 6,000 stocks every day and point me to the best of the best – the ones most likely to make me the most money.
That’s always the goal, and earnings provides important data to help us do that.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends