Best FinancialsStocks — Ranked by 5 Models
Banks, insurance companies, asset managers, exchanges, and diversified financial services.
Data as of
266 companies
Financials Companies (266)
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Start Free →How the five models treat Financials
| Profile | Models | Fair value | Q / V / M / T |
|---|---|---|---|
| Bank |
| Justified P/B = (ROE − g)/(COE − g) × book value | 45% / 10% / 30% / 15% |
| Insurer |
| Justified P/B = (ROE − g)/(COE − g) × book value | 45% / 10% / 30% / 15% |
| Asset manager |
| Justified P/E = payout × (1 + g)/(COE − g) on normalized EPS | 45% / 10% / 30% / 15% |
| Holding company |
| Justified P/B = (ROE − g)/(COE − g) × book value | 45% / 10% / 30% / 15% |
| General |
| Two-stage owner-earnings DCF (Damodaran industry cost of equity) | 40% / 10% / 35% / 15% |
A model that does not apply is left out of the company's axis, never scored as zero. Full definitions on the methodology page.
Investing in Financials Stocks
You cannot analyze a bank the way you analyze a software company. A bank's inventory is money itself, its revenue comes from the spread between borrowing and lending rates, and a "current ratio" is a meaningless concept when the balance sheet is mostly financial instruments. So AlphaStocks does not force financial companies through models written for industrial businesses: each financial company is assigned a profile — bank, insurer, asset manager or holding company — and a model that does not fit that profile is reported as not applicable, never scored as zero.
In practice that means fewer models, not substitute ones. Piotroski's F-Score assumes a current ratio and a gross margin, so it does not rate banks, insurers or asset managers. Greenblatt excluded financial companies from the Magic Formula. Lynch's categories and PEG do not apply to banks and insurers. Buffett rates banks with the tests from his 1990 letter on Wells Fargo — return on assets and leverage — and insurers with an adaptation from his 2007 and 2009 letters: whether premiums covered losses and expenses, return on equity, growth in book value per share, and premiums against equity. The table below shows exactly which models apply to each profile.
This sector is deceptively diverse. Payment processors like Visa and Mastercard are asset-light networks and are scored as general companies, with all five models. Traditional banks live and die by the interest rate cycle. Insurance companies are really investment firms that happen to collect premiums. Asset managers are leveraged bets on equity market levels. Each sub-industry responds to completely different macro drivers.
Fair value for banks, insurers and holding companies is a justified price-to-book: book value per share times (ROE − growth) ÷ (cost of equity − growth), from Damodaran's work on valuing financial firms. Financial stocks tend to look cheapest right before credit quality deteriorates, and a bank below book value may be a bargain or may be pricing in losses not yet reported. The Timing axis exists for exactly this: it stays low until momentum confirms the value.
Financials Stocks — Frequently Asked Questions
How does AlphaStocks handle bank stocks differently?
Banks get the models that fit them and are left out of the ones that do not. Piotroski and Greenblatt do not rate banks, and neither does Lynch. Buffett rates them with the 1990 letter's tests (return on assets, assets against equity) alongside return on equity, and Graham evaluates six of his seven criteria — he set no working-capital test for financial enterprises. Fair value is a justified price-to-book.
How are insurance companies scored?
Piotroski does not rate insurers (no current ratio or gross margin), so their Quality axis is Buffett alone, on an adaptation labelled as one: the 2007 and 2009 Berkshire letters judge an insurer by whether premiums cover losses and expenses — so the float costs nothing — and by growth in book value per share. The model adds return on equity, premiums against equity (NAIC IRIS ratio 2), retained earnings, share count and price. The underwriting test is not applicable to an insurer that lives mostly on fees rather than premiums. Value comes from Graham's six criteria for financial enterprises. An insurer without enough data for Buffett still has no composite, and the stock page says why.
Are financial stocks safe dividend investments?
Many banks and insurance companies pay substantial dividends, but payout sustainability depends on credit quality and regulatory capital requirements. Graham's uninterrupted-dividend record and the Buffett bank tests are useful starting points; neither measures credit quality directly.