There is a relatively new and deep small-cap banking niche to know about – and it is experiencing a solid 2019 stock market rally.
At Zacks, we label this 22-company strong banking group as Financial - Consumer Loans. But the classic buzzword floating around here is FinTech.
In brief, FinTech is the use of Big Data, and other forms of Artificial Intelligence, to enhance the process of lending to millions of everyday consumers.
Financial technology, often shortened to FinTech, is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.
To recap, it is an emerging industry that uses technology to improve activities in finance.
The Zacks Industry Rank of Financial - Consumer Loans has floated between 11 and 18 over the last 8 weeks. With 255 industries to rank at Zacks, that puts this group in the Top 10% consistently.
Studies have shown us:
- Roughly half of a stock's price movement can be attributed to a stock's industry group.
- In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
- By focusing on the top stocks within the top 50% of Zacks Ranked Industries, you can dramatically improve your stock picking success.
- Since the big Xmas selloff of 2018, this group’s share prices have indeed been in an outperforming share price recovery mode.
YTD returns for the Financial – Consumer Loans group are up +26.35%, which compares favorably to an S&P 500 index up +18.5%.
Next, I present three Zacks #1 Rank (STRONG BUY) FinTech stocks—
(1) Encore Capital Group (ECPG):
This is a Zacks #1 Rank (STRONG BUY) Stock, with a B for Value and a D for Growth. The market cap is $1.0B.
The stock started the year at $24 a share and is now $33 a share. In late 2017, it was above $45 a share. Today, with that share price in partial recovery, the PEG ratio is still a low 0.47.
Encore Capital Group is a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets.
Through its subsidiaries, the company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery.
Through its Propel Financial Services subsidiary, the company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans.
Encore's success and future growth are driven by:
- Its sophisticated and widespread use of analytics,
- Its broad investments in data and behavioral science,
- The significant cost advantages provided by its highly-efficient operating model and proven investment strategy, and
- The company's demonstrated commitment to conducting business ethically and in ways that support its consumers' financial recovery.
(2) LexinFintech Holdings Ltd ADRs (LX):
This is a Zacks #1 Rank (STRONG BUY) Stock, with a C for Value and a C for Growth. The market cap is $1.95B.
The stock started the year at $7 a share and is now $11.25 a share. In early 2018, this was between $16 and $18 a share. Today, with the share price in partial recovery, the forward 12-month P/E is 7.0.
LexinFintech Holdings is an online consumer finance platform for educated young adults primarily in China.
The company provides technologies including big data, cloud computing, and artificial intelligence.
LexinFintech is based in China.
(3) Navient Corp (NAVI):
This is a Zacks #1 Rank (STRONG BUY) stock, with a C for Value and a D for Growth. The market cap is $3.1B.
The stock started the year at $9 a share and is now trading at around $13 a share. In early 2017, this was a $16 stock. Fair value looks to be $22. This could be a double bagger.
An $8 share bottom was found in the Xmas selloff of 2018 and back in early 2016. So, it too is bouncing up from a low. The PEG ratio is at 2.0, which is the worst of the bunch here.
Navient Corporation offers a variety of loan management, servicing and asset recovery services to clients in higher education, and federal, state, and local governments.
The company operates in four segments:
- Consumer Lending,
- Business Services,
- FFELP (Federal Family Education Loan Program) Student Loans and
The company acts as a servicer for Department of Education and FFELP loans as well as private student loans.
Navient Corporation is based in United States.
Finally, I present two noted Zacks #2 Rank (BUY) larger market cap names.
(4) The $11.85B market cap Ally Financial (ALLY), an auto financial services company.
(5)The $3.95B market cap Sallie Mae (SLM).
That acronym is tied to a firm originally responsible for the nation’s government-sponsored student loan program. This company now originates, services, and collects mostly private education loans. It provides college savings tools too.
On April 30, 2014, Sallie Mae spun off its federal student loan servicing operation and most of its federal student loan portfolio into a separate, publicly traded entity -- called Navient Corporation.
Navient is currently the largest servicer of federal student loans and acts as a collector on behalf of the U.S. Dept. of Education.
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