Returns, of course, are the name of the game. Investors get into stocks as a way to grow wealth, and are quick to exit any instrument that doesn’t deliver. The key is learning how to recognize the stocks that are going to gain, and then staying in for the long haul.
Of the two, long-term investing is probably the more difficult. It’s tempting to dump a stock at a downturn, or sell off underperforming assets. But every stock market winner has seen periods of loss; those blips are common. Winning investors will remember Warren Buffett’s advice, “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” Long-term investing is based on time horizons measured in years. As Buffett has also said, the best holding period is forever.
Recognizing potentially strong stocks requires information – and lots of it. Fortunately, TipRanks has built up just the database you need – and provides a series of tools to make it easy to search and use the raw data. We’ve used the Stock Screener tool to find some interesting financial stocks that show signs of a potential breakout, and are set to outperform in the years to come. Let’s look at the details.
OneConnect Financial Technology Company, Ltd. (OCFT)
Up first is OneConnect, a software company whose products offer digital transformation, revenue increase, and risk management applications for financial institutions. The company’s customer base is in China, an important point, as China has a rapidly emerging technology sector. And, with a growing urban population that already exceeds 800 million, China’s pool of potential tech-sector customers is already larger than the entire US and EU populations combined.
The sheer size of China’s potential market already gives OneConnect a huge potential for growth, a potential that the company has begun to realize. Founded as one of the Ping An Insurance Group’s businesses, OCFT shares went public in mid-December. The IPO was priced at $9 to $10 per share, and the initial offering of 31.2 million shares met that target range.
That was seven weeks ago. Since then, OCFT shares have gained 27%, and the market cap has risen to $4.7 billion. It’s an impressive out-of-the-gate performance for OneConnect.
The company’s early and rapid gains have caught the attention of Morgan Stanley analyst Yang Liu, who writes of the stock, “We believe OCFT will be a long-term winner in China’s financial technology market given its early-mover advantage, unique value proposition, recurring revenue model, clear growth strategy, and strong parent company support.”
Liu puts a $16 price target on OCFT, implying an upside potential of 26% in support of his Buy rating. (To watch Liu’s track record, click here)
Even though it hasn’t been around long, OCFT stock has garnered 5 Buy reviews, giving it a unanimous Strong Buy analyst consensus. Shares sell for $12.72, and the average price target of $17.18 suggests room for a 35% upside potential. (See OneConnect Financial Technology stock analysis on TipRanks)
LexinFintech Holdings, Ltd. (LX)
The other Chinese fintech on our list, LexinFintech, is a holding company. LexinFintech offers a range of services, including wealth management and money loans, to very much of the same customer base as OCFT above.
Also like OCFT, LX stock had a successful IPO. LX started trading in December 2017, with a list price of $9 that quickly settled at $11.80. The initial offering sold 12 million shares, and raised over $130 million. The company’s current market cap is $2.3 billion, and shares trade at $13.30, a gain of 48% from the opening price.
Lexin’s earnings are strong, with the last quarter report showing $245 million in gross profit, from total revenues of $461 million. The company consistently beats the earnings forecasts, having exceeded expectations in the last five quarterly reports. LX will report next on March 12, and the consensus is for EPS of 56 cents.
Wall Street likes what it sees in LX. Writing on the stock after attending the company’s first Investor Day, Credit Suisse analyst Yiran Zhong said, “The positive outlook on loan volume growth is underpinned by record customer acquisition in 3Q19… [We like the] longer-term strategy to build an ecosystem that serves the consumption needs of its young customers, including through consumer finance, membership benefits and a point redemption system. We believe this helps Lexin tap into an expanded range of consumption scenarios, which in turn enhances its capacity to provide consumer finance services.”
Zhong’s price target, of $18.05, implies an upside of 36% from current price levels, and supports his Outperform rating.
Shares in LX are selling for $13.30, a low cost for a stock with a 50% upside potential. An analysis of the stock shows a set of strong data points, all pointing to overperformance in coming months. Financial bloggers are optimistic about the stock, with 100% of recent reviews taking a bullish stance against the sector average of 72%. (See LexinFintech stock analysis on TipRanks)
Citigroup, Inc. (C)
Third on our list is a staple of the markets, and a component of the S&P 500 index. Citigroup, with a market cap of $157 billion, is the third largest American bank, and is counted as one of the Big 4 along with JPMorgan Chase, Bank of America, and Wells Fargo. Citi has over 200 million customer accounts, does business in over 160 countries around the world, and saw total revenues of $72.9 billion in fiscal 2018. In short, it’s a banking giant.
Citigroup shares gained 53% in 2019, outpacing the broader markets by a wide margin. The stock also paid out a strong dividend, of 51 cents per share quarterly. The annualized payment, $2.04 per share, gives a yield of 2.74%, significantly higher than the S&P average. This is a stock that has a proven record of returns for investors, through multiple streams.
That proven record, combined with an easy cost of entry, generates lots of love among the Wall Street analyst corps. 5-star analyst Chris Kotowski, from Oppenheimer, writes of this company, “Citi remains one of the cheapest banks in our universe of coverage, at 1.16x tangible book value and ~9.4x our 2020 EPS estimate. Our $124 price target assumes a 70% relative P/E multiple based on consensus estimates for the S&P 500 and our estimates for Citi. This is at the lower end of the 70–80% that we generally consider to be fair value for banks.”
To this end, Kotowski gave the price target a boost. The new $124 price target implies an upside potential of 67% in the next 12 months, and fully justifies his Buy rating. (To watch Kotowski’s track record, click here)
Citigroup is a stock that is primed for outperformance in 2020, too. The analyst consensus is a Strong Buy, based on 13 reviews, including 11 Buys and 2 Holds. Shares are priced low for a blue-chip steadfast, at $74.41, but the $93.71 average price target indicates room for a 26% upside potential. (See Citigroup stock analysis on TipRanks)