The Best Financial Stocks to Buy According to Kiplinger
Financial stocks play a vital role in the economy and serve as a cornerstone for any diversified investment portfolio. In a recent feature by Kiplinger, editor Kyle Woodley explores some of the best financial stocks to consider buying in 2025, highlighting their importance, the different categories within the sector, and criteria for selecting strong performers.
Understanding Financial Stocks
Financial stocks encompass companies primarily engaged in offering financial services such as banking, insurance, brokerage, payment processing, and asset management. Using the Global Industry Classification Standard (GICS), which is widely adopted by index providers, the financial sector includes businesses involved in banking, consumer finance, capital markets, insurance activities, financial exchanges, and mortgage real estate investment trusts (REITs).
These companies function as the arteries of the global economy, facilitating trillions of dollars in transactions each year. Their services influence the daily financial lives of billions of people worldwide, making them integral to economic health and growth.
Why Invest in Financial Stocks?
Investing in financial stocks provides exposure to a sector deeply intertwined with economic activity. Unlike consumer staples, which are known for predictable demand, financial stocks can be cyclical—sensitive to economic expansions and contractions. For example, during recessions, higher unemployment may lead to increased loan defaults, negatively affecting financial institutions.
Moreover, interest rate fluctuations have a significant impact on financial companies. Rising interest rates generally allow banks to increase lending rates, boosting profitability; however, they can also dampen demand for loans and mortgages.
Despite these complexities, financial stocks remain essential for investors. According to Edward Jones analysts James Shanahan and Kyle Sanders, the financial sector represents a substantial portion of overall GDP and is critical for ensuring efficient economic operations. Their integral role in serving consumers, businesses, and institutions makes them a must-have in a diversified portfolio.
Different Types of Financial Stocks
Financial stocks come with a variety of business models and risk profiles. Some examples include:
- Mega-Banks: Large banks with diversified revenue streams and strong capital positions that often pay steady dividends, offering some safety during economic downturns.
- Financial Technology (FinTech) Companies: These firms are growth-oriented, capitalizing on the shift to digital banking, online payments, and mobile financial services preferred by younger generations.
- Insurance Companies: Generally more stable, these firms provide income through dividends and tend to benefit from rising interest rates, which improve their investment returns.
Criteria for Selecting the Best Financial Stocks
Kiplinger’s analysis centers on a quality screen applied to companies within the S&P Composite 1500 Index, which includes large-, mid-, and small-cap stocks representing about 90% of U.S. market capitalization. The criteria include:
- Long-term EPS Growth Rate ≥ 10%: To account for cyclicality while focusing on companies with strong growth potential.
- Return on Equity (ROE) ≥ 10%: A measure of efficient use of shareholder capital; above 15% is considered good.
- Consensus Buy Rating: Based on an average broker recommendation of 2.5 or better from at least 10 Wall Street analysts, ensuring robust analyst support and coverage.
- Dividend Yield ≥ 1.5%: Offering a modest income stream exceeding the S&P 500’s average yield of 1.3%.
Top Financial Stocks to Consider
Using the above parameters, Kiplinger highlights several financial stocks that stand out for their growth prospects, profitability, analyst confidence, and income potential:
| Company | Ticker | Long-Term EPS Growth | Return on Equity | Analyst Rating | Dividend Yield |
|---|---|---|---|---|---|
| MetLife | MET | 13.1% | 15.4% | Buy (1.0) | 2.8% |
| Blackstone | BX | 22.9% | 34.1% | Hold/Buy (2.0) | 2.6% |
| The Carlyle Group | CG | 11.5% | 20.4% | Hold/Buy (2.0) | 2.6% |
| Voya Financial | VOYA | 13.3% | 12.4% | Buy (1.0) | 2.5% |
| Equitable Holdings | EQH | 13.3% | 175.7% | Buy (1.0) | 1.9% |
| Progressive | PGR | 13.6% | 34.3% | Hold/Buy (2.0) | 1.9% |
| Western Alliance Bancorp | WAL | 11.3% | 12.7% | Hold/Buy (2.0) | 1.8% |
Note: Analyst ratings are on a scale where 1.0 indicates a strong buy and 5.0 a strong sell.
Final Thoughts for Investors
Financial stocks offer investors a blend of income, growth, and exposure to the broader economy. However, given their cyclicality and diversity across industries—from banking to insurance to fintech—investors should carefully evaluate their own investment goals and risk tolerance.
Kiplinger’s approach, focusing on strong long-term growth, high return on equity, solid analyst support, and attractive dividend yields, provides a practical starting point for building a financial sector portfolio.
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Kyle Woodley, Editor-in-Chief of WealthUp and former Senior Investing Editor at Kiplinger.com, contributed to this analysis.
For more detailed information, visit Kiplinger’s official website and access their extensive resources to support your investment decisions in financial stocks.