9 Intriguing Financial Stock Favorites for 2019

In an annual survey, MoneyShow.com asks the nation's top financial newsletter advisors for their favorite stock picks for the year ahead. For 2019, nine experts picked financial stocks, ranging from smaller regional banks and business development companies to financial services firms and global asset managers. Bruce Kaser, The Turnaround Letter For conservative investors in 2019, my top idea is Janus Henderson . The company is a $378 billion (assets) investment manager. The shares have been weighed down by concerns over asset outflows from weak mutual fund performance combined with clients' growing preference for ETFs, of which Janus offers very few. Its 2017 merger of equals didn't go as smoothly as expected. However, Dick Weil, who led Janus' prior turnaround, is now the sole CEO, and we believe he will bring improvements to the combined company. Most compelling is Janus' valuation, at a very modest 8.6x forward earnings. The company is generating considerable free cash flow and its cash balance is greater than its outstanding debt. Its dividend, which currently yields 6.7%, looks sustainable. The stock is recommended for more risk-oriented investors. Carl Delfeld, Cabot Emerging Markets Investor My recommendation is a diversified global bank that just happens to be based in Spain. The country has had its banking issues with a property bubble akin to our own debacle but now that the cleanup process is done, banks will be in better shape to provide loans and help stimulate the economy. This is why forward-looking markets are driving European stocks upward, outperforming U.S. stocks. Another reason that Europe may very well outperform America is that the European Central Bank (ECB) has signaled that it will keep rates steady for at least 12 months. A conservative way to play these trends is through a proxy for an economic recovery, Europe's largest bank, Banco Santander . Over the last decade, this Spanish bank has struggled a bit even as it has expanded its capital base and is a global bank in growth markets similar to HSBC. It sure seems to me quite a bargain. The stock is down some 30% in the last year and is trading at around 65% of book value. Since 2010, it has averaged a price to book value ratio of 2.4 over the past decade. The stock could more than double from here to around $8 as it returns to its historical average. Tap here to read MoneyShow's Top 100 Stock Picks for 2019! Adrian Day, Global Analyst Gladstone Investment is a Business Development Company -- or BDC -- that lends money to small businesses and pays out virtually all of its net income as a dividend. It also invests in equity in these private companies, with a goal of 70% debt/30% equity. For most BDCs, including Gladstone, the vast majority of its loans carry floating rates, while its own debt is most fixed rate. Thus, rising rates actually widen the gap between interest cost and interest income and are arguably beneficial for BDCs, at least early on in a tightening cycle. The bigger concern is if rising rates push the economy into a recession. Such an event does not appear imminent at this time. Moreover, companies like Gladstone, that were hurt in 2008, have taken steps to secure long-term or permanent funding that cannot be withdrawn in a credit crisis. The regular monthly dividend equates to a very attractive yield of 7.7%. But in addition, the company pays twice-annual supplemental dividend, which have recently equated to almost another two months' worth of regular dividends. Gladstone's NAV has increased consistently in recent quarters. From the beginning of 2016, it has increased from $9.25 per share to $12.29 per share, significantly above the current stock price. Overall, Gladstone is a compelling buy for long-term income-oriented investors. Benj Gallander, Contra the Heard First US Bancshares , our favorite conservative idea for 2019, is expanding with the takeover of The Peoples Bank, moving it beyond Alabama into Tennessee and Virginia. CEO/President James F. House has been in the industry for over 35 years and one can garner that he has seen it all. For investors, that adds a level of confidence, as too often, bankers tend to lose their way. In 2014, the bank recommenced a dividend of a penny a quarter, after a three-year hiatus. Now it is up to two cents. Prior to the financial crisis, it was $0.27 a quarter. Given that the share count has remained flat, further increases are likely in the cards. The stock seems cheap. Book value is $12.31, about one-third more than the trading price. The capitalization ratios are excellent with Tier 1 capital and Tier 1 risk-based capital ratios each 12.28 percent. Its total capital ratio is 13.20 percent, and its Tier 1 leverage ratio is 8.78 percent. Insiders own about 5.6 percent. Interest rates likely have some upside push left. That should help the banking sector and benefit the bank. First U.S. Bancshares used to trade at much higher levels. It would not surprise to see this one move back to the $25 level. And it could provide a good tuck-in takeover for a larger player that wants to expand. Timothy Lutts, Cabot Stock of the Week Green Dot is a little-known bank holding company with a great story and an amazingly broad reach. In fact, the company believes it has the most widely distributed financial services and banking franchise in the U.S. The company works behind the scenes in most cases, but that's been enough to produce an enviable track record of growth in recent years. It has both a product and a platform business. On the product side, Green Dot has a slew of offerings, though its core products are simple things like bank accounts, checking accounts, prepaid (and reloadable) debit cards and credit cards with a slew of perks. The firm's distribution network for its various products is amazingly large, with more than 100,000 brick-and-mortar locations selling its cards. The platform business, which it refers to as banking-as-a-service, allows partners to develop their own banking and financial offerings for their customers. Apple Pay Cash runs on Green Dot's platform, as do Walmart's MoneyCard and Intuit's Turbo card, All told, Green Dot makes money from transaction fees, recurring monthly account fees, interchange fees and interest income. And all four areas have been growing steadily as the company expands its partnership and reach. Doug Hughes, Bank Newsletter Our top 2019 pick for more conservative investors is Midland Capital Holding , which is a Chicago-based bank with over $100 million in assets. The bank is run by two brothers; they own over 50% of the stock and they both are in their mid-sixties, so we think a sale is near. They have been with the bank for over 40 years. The bank pays a small cash dividend; they never took TARP money, so it is as solid as they come. And they don't make any stupid loans. While they should be growing faster, they are playing it safe and earnings could double with another nearby bank taking them out very soon. With their real estate, the book value is rock-solid at around $39 a share. The stock is now trading well under book. This is a rare find in today's world, with many banks getting beaten down. In my view, the stock is worth at least $42 in a takeover -- or significantly more than recent prices. The bank has been around for over 100 years. In my opinion, this stock is as safe as it gets near a market top. Jason Clark, The Prudent Speculator Citigroup is a leading global financial institution with approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. The firm provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. While Citi had a strong 2017, shares were off more than 30% in 2018, despite rising interest rates and increasing profits. Even though the company faces some operational headwinds in different segments of its business, we continue to see a more focused and recapitalized Citigroup as prepared to reward investors over the long-term. Additionally, we like that Citi has good leverage towards a still solid U.S. economy, while also having the potential to show outsized benefits versus its peers from growth in Asia, Latin America and other emerging economies. Further, it seems the bank is still on its way to achieving its low-50s efficiency-ratio target by 2020. Citigroup shares trade at 70% of book value per share and around 8 times NTM adjusted EPS forecasts, all while offering a dividend yield of 3%, while the bank continues to consistently buy back its stock. Crista Huff, Cabot Undervalued Stocks Advisor Apollo Global Management, LLC is my top investment idea of 2019 for income-oriented investors. Apollo is an alternative investment company. Apollo's assets under management (AUM) total $270 billion, broken down as follows: credit (68%), private equity (27%) and real estate (5%). APO's most recent four quarterly dividend payouts totaled $1.93. At a recent price of $27, the current yield is around 7%. What's more, the stock traded as high as $36 in October, so there's substantial capital gain potential for new investors if the stock rebounds to 2018 highs. As the share price suffered during the recent market downturn, the current dividend yield rose, making the prospect of owning APO shares more compelling for both individual and institutional investors. In late December, Tiger Global Management reported a purchase of 1.1 million APO shares at an approximate cost of $26 million. APO is a great choice for income investors and growth stock investors. Stephen Biggar, Argus Research Charles Schwab Corp. has gained market share by challenging industry pricing standards with many low- or no-cost offerings, including its popular proprietary ETFs. The firm has optimized the spread earned on client cash sweep balances through bulk transfers from money market funds to its Schwab Bank. We expect higher short-term interest rates to drive continued growth in net interest revenue. Based on our expectations for 20% EPS growth in 2019, we view the shares as undervalued at less than 15 times our 2019 EPS estimate. We expect Schwab to post above-peer-average growth thanks to its innovative products and continued market share gains. Overall, Schwab has grown core net assets by more than $100 billion in each of the last six years, with a well above-average $233 billion in 2017. It also continues to take cost-conscious clients from other financial services providers. Given the substantial overcapacity in the financial services industry, management expects market share gains to be a primary growth driver and believes that the ability to build relationships and offer quality advice will be key determinants of success. We rate the financial strength of Schwab as High, the highest rating on our five-point scale. Charles R. Schwab has been chairman of the company since its inception in 1986. Mr. Schwab owns 141 million shares of stock valued at about $7.5 billion. Our 12-month target price is $69 per share.

9 Intriguing Financial Stock Favorites for 2019

From smaller regional banks and business development companies to financial services firms and global asset managers, nine experts choose their top picks for the year.

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