Banking, finance, and taxes
Both Hedge Fund and Mutual Fund Managers Love These Red-Hot Financials
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To say that Wall Street portfolio managers tend to talk amongst themselves is probably an understatement, as those in the industry tend to mingle professionally and socially. However, since hedge funds and mutual funds often have far different strategies and time horizons, they often have widely different portfolio holdings. So, we found it interesting when Goldman Sachs screened various top hedge funds and mutual funds looking for holdings they both had.
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The Goldman Sachs team found that there are 11 “shared favorites” of the top mutual funds and hedge funds that are performing well this year. We screened the list looking for stocks that also pay dividends and are rated Buy at Goldman Sachs. The current market environment is volatile, and dividend-paying leaders make sense in a low interest rate environment. While rates have moved somewhat higher, they remain near generational lows.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Bank of America
The company posted solid first-quarter results and the stock is on the Goldman Sachs Conviction List of top ideas. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
The bank has expanded into a number of new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Investors receive a 1.70% dividend. Goldman Sachs has a $45 price target on Bank of America stock. The $42.95 Wall Street consensus target price is closer to Monday’s closing print of $42.63 a share.
Citigroup
This top bank stock has rallied nicely but looks poised to move even higher for the rest of 2021. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations, governments a broad range of financial products and services.
Citigroup offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. It operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still very cheap 9.9 times estimated 2021 earnings, this stock looks very reasonable in what remains a volatile stock market and in a sector that has lagged dramatically.
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Investors in Citigroup stock receive a 2.61% dividend. The Goldman Sachs price target is $88, while the consensus target is $84.84. The shares closed trading on Monday at $78.03 apiece.
Charles Schwab
The iconic discount broker, which is also a member of the Goldman Sachs Conviction List, changed everything across Wall Street in 2019 with the elimination of commissions for online trading. Charles Schwab Corp. (NYSE: SCHW) is a leading provider of brokerage, banking and investment-related services to consumers and businesses.
The company has two business segments. Investor Services provides retail brokerage, banking, advice and other financial services, while Institutional Services provides business-to-business services to independent investment advisers and company benefit plan sponsors.
The analysts at Goldman Sachs expect the key driver for the company to be positive estimate revisions as Wall Street updates forecasts for higher securities reinvestment yields, which along with an easing of premium amortization in the coming quarters could help to stabilize the net interest margin.
Investors receive a 1.00% dividend. The $76 Goldman Sachs price target is less than the $79.83 consensus target. Monday’s close for Charles Schwab stock was at $72.61 per share.
Mastercard
This continues to be one of the top credit card plays in the world, and it also resides on the Goldman Sachs Conviction List. Mastercard Inc. (NYSE: MA) is a global payments provider that operates one of the largest payment processing networks, connecting billions of consumers, millions of merchants, and thousands of financial institutions in more than 210 countries. Its brands include Mastercard, Maestro and Cirrus.
The company also provides value-enhancing offerings such as loyalty and rewards programs, information services and consulting. According to Nilson estimates, Mastercard is the third-largest global credit and debit network, as measured by volume.
Small businesses and individuals having a hard time entering the digital economy are getting a boost from Mastercard as the need to receive funds electronically and make digital and contactless payments has been underscored by the COVID-19 pandemic.
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The company has pledged to connect 1 billion people and 50 million small businesses to the digital economy by 2025. This commitment is an extension of its 2015 promise to bring 500 million people who don’t have ready digital access to financial products into the system.
Investors receive just a 0.47% dividend. Goldman Sachs has set a sizable $450 price target. The consensus target for Mastercard stock is $428.06, and Monday’s last trade came in at $372.38 a share.
UnitedHealth
This insurance and managed health care giant also makes the list. UnitedHealth Group Inc. (NYSE: UNH) is one of the largest managed care organizations, serving members both in the United States and internationally. It is the most diversified payer, either by product line, geography or customer type.
Its UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, midsized employers, small businesses and individuals; health and well-being services to individuals age 50 and older, addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals; and Medicaid plans, Children’s Health Insurance Program, and health care programs; and health and dental benefits.
The OptumHealth segment provides access to networks of care provider specialists, health management services, care delivery, consumer engagement and financial services. This segment serves individuals through programs offered by employers, payers, government entities and directly with the care delivery systems.
The OptumInsight segment offers software and information products, advisory consulting arrangements, and services outsourcing contracts to hospital systems, physicians, health plans, governments, life sciences companies and other organizations.
OptumRx is the segment that provides pharmacy care services and programs, including retail network contracting, home delivery, specialty and compounding pharmacy, and purchasing and clinical. It also develops programs in areas such as step therapy, formulary management, drug adherence and disease/drug therapy management.
Shareholders receive a 1.21% dividend. The Goldman Sachs analysts have a $464 price target. That compares to the $435.42 per share consensus target, UnitedHealth stock closed most recently at $410.95.
Financials and financial-related stocks dominate the shared favorites list, and with good reason. Many underperformed last year but have been absolutely on fire this year. It may make sense to buy partial positions now and see if some of these top stocks don’t back up this summer, where more shares could be added at lower levels.
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