In this piece, we will take a look at ten oversold financial stocks to buy. If you want to skip our introduction that covers recent developments in the finance industry, then head on over to 5 Oversold Financial Stocks to Buy.
Due to its close association with all things economy, the finance industry has been in a state of consistent turmoil for quite some time now. The stock market crash of 2020 during the onset of the coronavirus pandemic was the first economic shock of its kind in twelve years. However, while it took markets and indexes, such as the S&P 500 to take six years to recover from the crash in 2008, the COVID-19 fall out was reversed in a matter of months as low interest rates and generous stimulus kept the economy afloat at a time when businesses such as hospitality and cruising were shuttering down.
At the same time, this reversal would be short lived for a much longer negative time period. Despite the strong performance year to date, the S&P 500 index is still down roughly three percent down from its peak in December 2021. This fact also holds true for the year's top performing NASDAQ Index, which had delivered a solid 45% returns year to date. However, it has taken the stock index roughly eighteen months to reverse the losses of 2022 with returns as of late July 2023 being negative 32 basis points.
So naturally, this tough environment has made finance one of the most dynamic sectors over the past couple of years; a fact that is clear from the turmoil in the hedge fund and banking industries. The market's bottom in 2022 effectively removed all gains made since the early stages of recovery from the coronavirus shock, and this led to the hedge fund industry losing a stunning $208 billion. The worst hit fund during the crisis, Chase Coleman and Feroze Dewan's Tiger Global's portfolio fell from $54 billion to $8 billion in the course of a year.
But while the hedge fund industry's bottom was in 2022, the banking sector had to wait a little longer. As part of its efforts to combat inflation, the Federal Reserve has rapidly raised interest rates to reduce the money supply in the market, make getting credit difficult, and moderate corporate spending sufficiently to cool down the labor market. For banks, especially regional banks, this has led to losses on portfolio holdings as they are made of securities that were issued during a low interest rate environment. This crisis peaked as the first quarter of 2023 ended, with three banks failing and causing long lines at branches as depositors scurried to withdraw their funds.
One of these banks, SVB Financial Group (OTC:SIVBQ) worked with startups, with Bronte Capital's letter for the Amalthea Fund explaining that SVB's fate was due to a clear misreading of the interest rate environment:
The problem of course was that during this explosive growth interest rates were zero. The low-risk thing to do was to take the deposits and invest in short-dated Treasury paper. After all there was no way that Silicon Valley Bank could invest the funds with any edge at the rate they flowed in.
Banks tend to treat start-ups terribly. Getting credit cards for your staff for instance is hard. Getting a bank to take seriously a tech start-up run by a bunch of pimply 22-year-olds funded by a VC firm, but with no revenue and no business experience is—well—tricky.
Looking towards the rest of the year, banks have ended up performing quite well this year if we look at the July 2023 earnings season. Earnings results posted by Bank of America Corporation (NYSE:BAC) and Morgan Stanley (NYSE:MS) both beat earnings estimates in their latest fiscal quarters. In fact, most banks that reported their earnings on July 18 beat both revenue and earnings expectations, joining the behemoths JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) who had also beat revenue and profit estimates earlier. This has also led to the KBW Nasdaq Regional Banking Index gaining 17.94% over the past month despite still being down by 9.49% year to date.
At the same time, the regional bank crisis left regulators scrambling to introduce reforms to the banking sector to ensure that a similar crisis does not take place at some of the bigger banks that we have talked about above. After all, these potential failures, especially in today's high rate environment, can carry catastrophic impacts to the economy right when the Federal Reserve's interest rate hiking cycle might be nearing its end, and consumer savings that have fueled some of the economic growth could be dwindling.
So, these conditions might have led to some irrational reactions in the market leading investors to oversell some stocks to protect themselves. What are such stocks? We've taken a look today and the top picks are Willis Towers Watson Public Limited Company (NASDAQ:WTW), Discover Financial Services (NYSE:DFS), and Ryan Specialty Holdings, Inc. (NYSE:RYAN).
To make our list of the most oversold financial stocks we first listed down stocks with an RSI reading less than forty, a market capitalization higher than $50 million, and average analyst ratings of Buy at the minimum. Out of these, the largest companies were chosen as the most oversold financial stocks and are ranked by their market capitalization.
SWK Holdings Corporation (NASDAQ:SWKH) is a healthcare financing firm that serves the needs of firms in most segments of the industry. Its average share price target is $24, and the firm repurchased a substantial amount of shares during Q2 2023.
Three of the 943 hedge funds part of Insider Monkey's database had held a stake in SWK Holdings Corporation (NASDAQ:SWKH) by the end of Q1 2023. Out of these, the firm's largest investor is Clint Carlson's Carlson Capital with a sizeable $162 million stake.
SWK Holdings Corporation (NASDAQ:SWKH) joins Discover Financial Services (NYSE:DFS), Willis Towers Watson Public Limited Company (NASDAQ:WTW), and Ryan Specialty Holdings, Inc. (NYSE:RYAN), in our list of oversold financial stocks.
Waterdrop Inc. (NYSE:WDH) is a Chinese technology company that runs a platform that connects insurance brokerages with their customers. Four analyst notes covered the shares as of July, and despite being a penny stock, the shares are rated Strong Buy on average due to Morgan Stanley's Overweight rating in September 2022. Since then, the shares are up by more than 43%.
As of March 2023, three of the 943 hedge funds polled by Insider Monkey had bought Waterdrop Inc. (NYSE:WDH)'s shares. Paul Marshall and Ian Wace's Marshall Wace LLP is the firm's largest hedge fund shareholder, owning 100,286 shares that are worth $299,854.
LendingClub Corporation (NYSE:LC) is a bank that provides traditional bank services such as accounts and loans. Its latest second quarter saw the firm beat analyst earnings per share estimates, as it beat earnings estimates by 200% and revenue by a much more modest 1.62%.
22 of the 943 hedge funds polled by Insider Monkey for 2023's first quarter had owned LendingClub Corporation (NYSE:LC)'s shares. Out of these, the financial firm's biggest investor is David Rosen's Rubric Capital Management courtesy of its $39.6 million investment.
7. Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD)
Number of Hedge Fund Investors in Q1 2023: 17
Latest 14-Day RSI Reading: 38.79
Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD) is another insurance company. The firm's fourth quarter of 2022 and first quarter of 2023 earnings per share readings have smashed analyst expectations out of the part. Additionally, five of the six analyst covering the shares have rated them as Buy or equivalent, with one rating the stock as a Strong Buy.
By the end of this year's first quarter, 22 of the 943 hedge funds part of Insider Monkey's database had owned a stake in Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD).
Federated Hermes, Inc. (NYSE:FHI) is an investment company that manages asset vehicles such as mutual funds. It missed analyst EPS estimates during its latest quarter, and the average share price target is $38.40.
Insider Monkey's first quarter of 2023 survey covering 943 hedge funds revealed that 33 had bought Federated Hermes, Inc. (NYSE:FHI)'s shares. Out of these, the firm's largest investor is Ken Griffin's Citadel Investment Group with a stake worth $91.7 million.
Willis Towers Watson Public Limited Company (NASDAQ:WTW), Federated Hermes, Inc. (NYSE:FHI), Discover Financial Services (NYSE:DFS), and Ryan Specialty Holdings, Inc. (NYSE:RYAN) are some of the largest oversold financial stocks.
