Goldman Sachs (NYSE:GS) announced it was laying off 3,200 employees in early January. That worked out to about 6.5% of its global workforce. While GS wound up laying off fewer employees than previously expected, the move indicates that investors ought to look elsewhere for the best financial stocks to buy.
The job market has gotten weird over the past year. While finance and tech companies seem to be laying off people by the boatload, other industries need help finding enough staff.
In 2023, we’ll likely to see many twists and turns. The layoffs by Goldman Sachs suggest that the economy is not completely healthy. Unfortunately, Wall Street seems to be having trouble identifying the cause of the two-tiered job market.
In Goldman Sachs’ case, the layoffs were partially caused by the failure of its consumer banking businesses to gain traction. Secondarily, Goldman is eliminating jobs just in case the IPO and mergers and acquisition markets don’t rebound in 2023.
Goldman Sachs might not be a buy, but these three financial stocks are.
Of the 70 financial stocks in the S&P 500, financial management company MSCI (NYSE:MSCI), which is best known for its ETFs, is the 16th best performer over the past month, having climbed nearly 11%. Over the past five years, it’s up more than 26o%.
I see no reason why MSCI’s shares can’t continue to increase during 2023.
In the first nine months of 2022, MSCI’s revenues increased 12% to $1.67 billion, while its operating income jumped 13.5% year-over-year to $899 million. Finally, its operating margin was a healthy 53.7%, nearly double Goldman Sachs’ for 2022.
The company generates approximately two-thirds of its revenue from recurring subscriptions. The Index segment, its largest, accounts for 44% of the company’s recurring subscription revenue. The third quarter of last year marked the 35th consecutive quarter that the unit’s subscription revenue increased at least 10% year-over-year.
Although MSCI slightly lowered its Q4 guidance, it will still deliver free cash flow of over $1 billion in 2022. Trading at 39 times the company’ free cash flow, the stock isn’t cheap. However, if you want risk-adjusted returns that are better than most stocks, MSCI is worthwhile.
MSCI is easily my favorite financial stock.
Of the 70 financial stocks in the S&P 500, MarketAxess (NASDAQ:MKTX) is the 11th best performer over the past month, as it has climbed 19% in that time. It has risen 38% over the last three months.
If you’re unfamiliar with MarketAxess, it provides investment firms with the tools needed to trade fixed-income securities through its Open Trading marketplace. It was founded in 2000, and went public in November 2004 at $11 a share. Those who held the shares all those years have done incredibly well.
The stock should do well over the next 18 years as well.
On Jan. 9, the company announced that its CEO and founder, Rick McVey, would become its Executive Chairman on April 1. Succeeding McVey is the company’s current COO, Chris Concannon. He came to MarketAxess from Cboe Global Markets (BATS:CBOE) in January 2019. Concannon previously served as Cboe’s COO and President.
Planning for the replacement of the CEO is vital for any business. Shareholders can rest easy knowing that McVey and the board handpicked Concannon.
On Jan. 5, MarketAxess reported its December trading statistics and its preliminary Q4 results. The company’s composite corporate bond market share rose 2.1 percentage points year-over-year to 20.9%,. In addition, the firm’s total average daily volume climbed 4.3% YOY to $30.42 billion.
With a fast start to the year, MKTX is in an excellent position to double in 2023.
Morgan Stanley (MS)
Of the 70 financial stocks in the S&P 500, Morgan Stanley (NYSE:MS) is the second best performer over the past month, having climbed 13 %. In the last three months, MS has rallied 23%.
While Goldman Sachs piled into consumer banking, Morgan Stanley was busy building a wealth management business. And, if recent earnings reports are any indication, MS CEO James Gorman made the right call.
Goldman generated $11.26 billion of profits from $47.37 billion of revenue in 2022. However, that included a $3 billion loss from its foray into consumer banking. Morgan Stanley earned $11.03 billion in 2022 from $53.67 billion of revenue.
Goldman’s margins were better, but Morgan Stanley’s wealth management business generated record full-year revenue of $24.4 billion, 6% higher than a year earlier. And MS’s pre-tax profit was $6.59 billion, which is also healthy.
RBC Capital recently raised its price target on Morgan Stanley by $10 to $90. While that’s below its current share price, RBC feels the company’s diversification helped it avoid being badly hurt its investment banking business.
“The diversification of its businesses has led to less revenue and earnings volatility than it experienced during the financial crisis in 2008-09. It has not eliminated the volatility but greatly reduced it,” Barron’s quoted RBC analyst Gerard Cassidy as saying.
The analyst believes that the owners of MS stock will be nicely rewarded over the next 12-24 months with share repurchases and dividends that will add up to 100% of the firm’s earnings.
MS has a healthy dividend yield of 3.2%
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.