Stock Market Today

T. Rowe Price Financial Services Banks on a Turnaround

This fund is a good way to bet on an economic rebound.

The rollout of COVID vaccines has raised the prospects of a return to economic normality. That’s good news for financial stocks, which are sensitive to shifts in the economy.

T. Rowe Price Financial Services (PRISX) invests broadly across the sector, in major and regional banks, payment networks, insurers and asset managers. Manager Gabriel Solomon builds his portfolio one stock at a time, digging into each firm’s fundamentals. He invests in companies of all sizes, with a three- to five-year holding period in mind. And he’s on the prowl for bargains: “The fund tends to have a contrarian and deep-value bias,” says Solomon, who works closely with a team of analysts around the globe.

That partiality came in handy in 2020. Financial stocks cratered in the spring amid uncertainties about the virus. Solomon beefed up stakes in Wells Fargo, Fifth Third Bank and Sig­nature Bank, a New York–based commercial bank. He added new positions in Capital One Financial and Huntington Bancshares.

“Every stock has its own story,” says Solomon. Wells Fargo, for one, is still restoring confidence after its fake-account scandal. “The market is underestimating what the company will look like on the other side,” says Solomon. Signature was beaten down due to its exposure to New York real estate, but its balance sheet is “close to pristine,” he says.

Valuation guides Solomon’s buy and sell decisions, but he’ll hold on to fast-rising stocks, such as Visa, as long as long-term growth prospects justify the valuation. Last year, he unloaded Citigroup stock—not because it had risen 57% in 2019, but because of a worrying rise in turnover among middle managers. “It’s important to continue to ask ourselves, What are we missing? Is the situation the same as we thought it was, is it getting better, or is it worse?” says Solomon.

Looking ahead, Solomon is optimistic. Going through the pandemic, the sector survived “an incredible stress test and came out really strong,” he says. Consumer and commercial borrowers overall are in healthy shape, too, which could fuel loan growth. Against this backdrop, a rise in interest rates, a traditional boost to bank profits, would be “icing on the cake,” says Solomon.

financial funds chart with PRISX

As of February 5, 2021. r Maximum redemption fee. Unless otherwise indicated, funds come in multiple share classes; we list the share class that is best suited for individual investors. Sources: ICE Data Services, Morningstar Inc., Vanguard.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
25 Best Kirkland Products You Should Buy at Costco
Smart Buying

25 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
July 21, 2021
Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments
Tax Breaks

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

Unlike stimulus checks, you might have to repay your monthly child tax credit payments if you get too much money from the IRS.
July 16, 2021

Recommended

Stock Market Today (7/30/21): Stocks Retreat After Amazon Revenue Miss
Stock Market Today

Stock Market Today (7/30/21): Stocks Retreat After Amazon Revenue Miss

The major indexes all logged solid July gains, though, with the S&P 500 bringing its monthly win streak to six.
July 30, 2021
Readers Find Some Weird Winners
Investing for Income

Readers Find Some Weird Winners

Most of the time, I find flaws in offbeat investments with high distributions. But sometimes oddities have their day of glory.
July 30, 2021
I Still Like the Trillion-Dollar Stocks
Becoming an Investor

I Still Like the Trillion-Dollar Stocks

Unlike the highfliers of the late 1990s, these trillionaires make tons of money.
July 29, 2021
How to Play the High-Yield Rally
Becoming an Investor

How to Play the High-Yield Rally

Junk bonds have been on a tear, so this fund has shifted to defense.
July 29, 2021