The Federal Reserve has paused interest rate hikes, signaling stability, with a reduction in March unlikely, boosting the financial sector. Moreover, U.S. banks anticipate increased loan demand despite tightening credit standards, indicating a potential easing of monetary tightening.
So, investors could consider robust consumer finance stocks Mastercard Incorporated (MA), American Express Company (AXP), and Noah Holdings Limited (NOAH) to safeguard their portfolio.
The Federal Reserve has raised the federal funds rate to its highest level in over two decades, currently standing between 5.25%-5.5%. In its recent meeting, the Federal Reserve indicated that it has halted interest rate hikes but isn't considering cuts, with a March reduction becoming increasingly improbable.
Additionally, according to a Federal Reserve survey of senior bank lending officers, U.S. banks anticipate increased loan demand as interest rates decrease despite tightening credit standards on certain types of loans. The survey's overall indication suggests that the worst of monetary tightening for the financial market may be behind us.
Moreover, the pandemic accelerated the shift towards digital payments, with a global decline in cash usage, signaling a sustained preference for convenient digital alternatives. As per McKinsey’s 2023 Global Payments Report, there was a 4% global reduction in cash usage last year.
Besides, the consumer finance sector, fueled by technology and shifting consumer preferences, is poised for significant growth this year. The global consumer finance industry is projected to grow at a CAGR of 7.1% to reach $1.96 trillion by 2029.
Further, the integration of generative AI, migration to cloud-based systems, and the blurring of industry boundaries with the emergence of embedded finance trends will boost the consumer finance industry this year. Generative AI in financial services is expected to grow at a CAGR of 28.1% to reach $9.48 billion by 2032.
In light of these encouraging trends, let’s look at the fundamentals of the three best consumer finance stocks.
Mastercard Incorporated (MA)
MA is a technology company that provides transaction processing and other payment-related products and services in the United States and internationally. The company offers integrated products and value-added services for account holders, merchants, financial institutions, businesses, governments, etc.
On February 6, MA declared a quarterly cash dividend of 66 cents per share. The cash dividend will be paid on May 9, 2024, to holders of record of its Class A common stock and Class B common stock.
The company's yearly dividend of $2.64 equates to a 0.58% yield based on current prices, with a four-year average yield of 0.52%. Over the past three years, its dividend payouts have increased at a CAGR of 13.1%. Additionally, MA has an impressive track record of 12 consecutive years of dividend growth.
During the fiscal year, which ended on December 31, 2023, MA’s adjusted net revenue increased 13% year-over-year to $25.10 billion. The company’s adjusted net income rose 12% from the year-ago value to $11.60 billion, and its adjusted EPS improved 15% year-over-year to $12.26.
MA’s revenue and EPS are expected to rise 10.3% and 15.7% year-over-year to $6.34 billion and $3.24 in the fiscal first quarter ending March 2024. Moreover, the company has an excellent surprise history, surpassing its revenue and EPS estimates in each of the trailing four quarters, which is impressive.
MA’s shares have gained 17.6% over the past three months to close the last trading session at $458.26.
MA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Stability and Sentiment. In the 45-stock B-rated Consumer Financial Services industry, it is ranked #3.
Click here to see MA’s ratings for Growth and Value.
American Express Company (AXP)
AXP provides charge and credit payment card products and travel-related services worldwide. The company operates through three segments, Global Consumer Services Group; Global Commercial Services; and Global Merchant and Network Services. Its products and services include payment and financing products, network services, accounts payable expense management products and services, etc.
The company pays an annual dividend of $2.40, which yields 1.14% on the current market price. Its dividend payouts have soared at a CAGR of 11.7% over the past three years. Moreover, the company plans to increase the regular quarterly dividend on its common shares outstanding by 17%, from $0.60 to $0.70 per share, beginning with the first quarter 2024 dividend declaration.
During the fiscal fourth quarter that ended December 31, 2023, AXP’s total revenues net of interest expense increased 11.3% year-over-year to $15.80 billion. Its net income rose 18.8% from the prior year to $1.90 billion. In addition, its earnings per common share came in at $2.62, up 26.6% over the prior-year quarter.
Street expects AXP’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 10.4% and 24.8% year-over-year to $15.76 billion and $3, respectively.
Over the past three months, the stock has gained 38% to close its last trading session at $211.21.
AXP’s bright outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
AXP has a B grade for Sentiment and Quality. It is ranked #11 in the Consumer Financial Services industry.
In addition to the POWR Ratings highlighted above, you can see AXP’s ratings for Growth, Value, and Stability here.
Noah Holdings Limited (NOAH)
Headquartered in Shanghai, the People’s Republic of China, NOAH operates as a wealth and asset management service provider with a focus on investment and asset allocation services for high-net-worth individuals and enterprises in Mainland China, Hong Kong, and internationally. It operates through three segments: Wealth Management; Asset Management; and Other Businesses.
Its annualized dividend of $0.38 per share translates to a dividend yield of 3.29% on the current share price. Its four-year average yield is 0.47.
During the fiscal third quarter that ended September 30, 2023, NOAH’s net revenues and income from operations increased 9.6% and 7.4% year-over-year to RMB749.96 million ($105.27 million) and RMB248.89 ($34.94 million), respectively. Its adjusted net income attributable to NOAH shareholders stood at RMB232.45 million ($32.63 million) and RMB3.35 per share, up 21.8% and 21.4% from the prior-year quarter.
Analysts expect NOAH’s revenue and EPS to increase 14.3% and 19.6% year-over-year to $542.91 million and $2.50, respectively, for the fiscal year of 2024 (ending December 2024). The company exceeded consensus EPS estimates in each of the trailing four quarters.
The stock plummeted 3% intraday to close the last trading session at $11.66.
NOAH’s POWR Ratings reflect its sound prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
NOAH has a B grade for Value, Momentum, Sentiment, and Quality. Within the B-rated Foreign Consumer Finance industry, it is ranked #2 out of nine stocks.
To see additional POWR Ratings for Growth and Stability for NOAH, click 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.
MA shares were trading at $457.32 per share on Friday afternoon, down $0.94 (-0.21%). Year-to-date, MA has gained 7.39%, versus a 5.14% 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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