History shows that long-term investors are rewarded for their patience. Those who buy top-notch companies and stick with those investments for the long haul have an excellent opportunity to build generational wealth.
A key part of this approach is remaining diversified across various market sectors. The financial industry may make you think of banks, but it extends far beyond that to companies with broad customer bases offering a range of products and services that help the economy run smoothly.
Meanwhile, online brokerages have made it easy for retail investors to build wealth through the stock market. As a result, investors can get started investing for as little as $500. Here are three excellent financial stocks that can help you get started.
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1. Progressive
Insurance companies can be excellent cash-flow machines, and Progressive(NYSE: PGR) is one of the best in the industry. The company has a long history of growing its premiums over time while maintaining solid profitability metrics. Over the last decade, Progressive's policies in force have grown from 13.6 million to 29.7 million.
Even better, the company has been an effective hedge against the inflationary pressures that emerged in the economy a few short years ago. From 2021 through 2023, its policies in force grew by 12% while its net premiums written increased by 33%, illustrating the insurer's strong pricing power.
Progressive is positioned to grow during an inflationary environment but also benefits from an expanding economy, which happens to be the case most of the time. In the past 70 years, the U.S. has been in a recession in only 15% of the months.
Not only that, but it also earns money from its massive investment portfolio, which has been raking in more cash thanks to higher interest rates. At the end of the first quarter, Progressive's investment portfolio was valued at $69 billion and earned $612 million in net investment income, an increase of 47% from last year.
2. PayPal
PayPal(NASDAQ: PYPL) is a few years removed from being Wall Street's darling growth stock. The company crushed it during the pandemic and saw incredible growth across its business as more people shifted to digital payments. However, its growth story came crashing down as management tempered expectations. Now, under the guidance of new CEO Alex Chriss, PayPal will look to get things back on track.
PayPal continues to see solid growth across its top line, and its income rebounded nicely last year. However, investors have grown concerned about its take rate, or the total revenue retained from each transaction, which has declined every year since 2015. The falling take rate results from its breakup with eBay, along with a lower take rate on Venmo and its unbranded checkout option, Braintree.
Chriss, who previously worked as an executive vice president and general manager for Intuit's small business and self-employed group, is looking to upgrade PayPal's offerings for those businesses with PayPal Complete Payments. The company, which has a trove of customer transaction data, is also launching its own advertising network, which could be another driver of growth for the fintech.
PayPal's turnaround will take time, and the company has deemed this a transition year. If you're willing and able to wait out it, PayPal looks like an incredible bargain today, trading at 15.9 times earnings and 2.3 times sales.
3. Morgan Stanley
Things have been tough for investment bankers over the past few years. After a record 2021, led by robust demand for initial public offerings (IPOs) and a flurry of mergers and acquisitions (M&A), investment banking activity came to a screeching halt.
While Morgan Stanley(NYSE: MS) was able to rely more on its asset and wealth management businesses, investment banking still accounts for a significant portion of its business.
Elevated inflation, and more specifically, rising interest rates, resulted in market volatility throughout 2022, which caused many companies to put IPO plans on hold. As a result, investment banking revenue plummeted across the industry.
According to the professional services firm EY, things appear to be turning around. In the first quarter, there were 38 IPOs, with companies raising proceeds of $8.7 billion. That's up from last year when there were 33 IPOs but only $2.6 billion in proceeds. The company said that the IPO pipeline has been building for two years and that it was "encouraged by the IPO market's improvement."
In the first quarter, Morgan Stanley's investment banking revenue increased 16%, thanks to especially strong equity underwriting revenue from IPOs and robust debt underwriting. M&A is also expected to pick up, with CEO Ted Pick telling investors, "The pipeline is clearly growing" and the company is in the "early innings of a multiyear M&A cycle."
With an improving backdrop for equity and debt underwriting and more constructive M&A activity, now could be an excellent time to scoop up shares of Morgan Stanley, which are reasonably priced at a forward price-to-earnings ratio of 14.3.
Should you invest $1,000 in Progressive right now?
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Courtney Carlsen has positions in Morgan Stanley, PayPal, and Progressive. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends Progressive and eBay and recommends the following options: short July 2024 $52.50 calls on eBay and short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
