The Advantages of Investing in Finance

The Case for Buying Bank Stocks

The global pandemic has caused the majority of the market to take a heavy beating. This has been especially true for the finance sector, and especially banks. Because of this many banks, especially those that are established and have been around through multiple crises are now excellent deals.

Most large stocks in the finance sector are still down 25%+ due to less economic activity and fears of reduced spending and the unemployment numbers. Due to this, many of these banks like Wells Fargo, JPMorgan, Bank of Montreal, and TD are now solid buys at discounts with consistent and strong dividend history.

The worst-case for these stocks is the potential of the second wave of COVID-19. This would create large downside pressure and delay the reopening of the economy. Market bears will also tell you the economy wasn’t doing well pre-COVID and that therefore these stocks still have a significant amount of risk.

The best-case for these stocks is a clean reopening of the economy and therefore money flowing back into the economy. Although it’s incredibly unlikely that we will have a flawless reopen, people neglect that the means of spending is simply shifting, and moving to online shopping, and as things return to normal we will see more steady spending. When employment numbers return to semi-normal levels we will also see a lot of upside in the finance sector.

Realistically, it’s likely that we will see some sort of in-between result, but many of these factors have been priced in and also ignore a major point of why banking stocks will serve as a good investment. Long-term, these are safe stocks with good dividends that will rebound. This could be a once in a decade opportunity to pick up stocks that are essential to the public, supported by the fed, safe, and have a good dividend at a discounted price. A wise long-term investor would slowly DCA into these stocks over-time, minimizing the risk to any price drops, and securing a consistent dividend.

The case for Canadian banks like the Royal Bank of Canada, Bank of Montreal, TD, Scotiabank, and Canadian Imperial Bank of Commerce is even better. These stocks are still recovering, many have paid out a consistent steady-growing dividend even through recessions, and to add to this deal the Canadian economy is likely to return to semi-normal much quicker as the handling of COVID-19 has been much better in multiple provinces.

This makes most bank stocks, with fundamentals that are likely to improve (especially those in Canada) a low-risk investment with potential for excellent returns long-term.

Payment Services

Payment services like Paypal, Visa, and Mastercard are also good investments, although admittedly it may be late to get in on Paypal for the time being. These services will be used more as the economy gets back to normal, and it’s likely that Paypal will continue to thrive in an environment where online purchases are more common. Although less attractive in terms of dividend (Paypal doesn’t even offer one), these companies are staples and used globally.

Square is also a company that has a lot of potentials as it accepts online purchasing and is used by many small businesses all over the globe. As the economy reopens, it will continue to have multiple positives to their business model.

The fundamentals and opportunity seized by traders limit the upside to Paypal and Square, but Mastercard and Visa still have a lot of potential after now being up slightly YTD.

Investment Managers and Asset Management

Investment companies like Berkshire-Hathaway, Blackstone, Onex, KKR & Co, Apollo, and others still have lots of potentials. Although Blackstone and KKR have returned to almost pre-COVID prices Berkshire-Hathaway, Onex, Citibank, and many others are still down 25%+, creating a good opportunity to diversify your money easily with the potential for large returns. Many of these are well-respected names in the investment world. Apollo also has the special case of having made the majority of their returns in recessions, making them potentially an excellent hedge, however, they have already returned to pre-COVID prices and are now positive YTD.

Berkshire-Hathaway has the advantages of not only diversification of your money but comes along with the ability to invest under legendary investors Warren Buffet and Charlie Munger.

Onex capital is an interesting case, a Canadian investment firm that allows public trading but invests in private equity, opening up a part of the market not usually made available to those trading on the TSX. Onex has also consistently made above 20% returns with consistent leadership.

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