Best Financial Stocks to Buy

Investors seeking out the best financial stocks will want to tread carefully, focusing on high-quality names with solid fundamentals.

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For investors on the hunt for value, financial stocks may look alluring. This is due to their current downtrodden state following the regional banking crisis from earlier this year.

But tread carefully.

Financial stocks are lagging in 2023, with the Financial Select Sector SPDR ETF (XLF) flat on a year-to-date basis vs a more than 15% gain for the S&P 500. When just looking at regional banks, the underperformance is even worse, with the SPDR S&P Regional Banking ETF (KRE) down 28% so far this year.

Bank stocks can be "value traps," according to a recent research note from BofA Global Research.

However, there are winners even in this bleak scenario: High-quality financial services stocks with strong balance sheets that are undervalued.

How to find the best financial stocks to buy 

One way to screen for these top financial stocks is the Morningstar Wide Moat Focus Index, which tracks the lowest-priced companies with competitive advantages that are expected to last more than 20 years into the future.

This index has outperformed U.S. stocks over time: Since its debut in 2007, the index has more than quadrupled compared with a threefold increase in the S&P 500.

Morningstar calls these wide-moat stocks "very rare," as they are the "cream of the crop in terms of the quality and durability of their business models."

We used this index as a jumping off point to find the best stocks to buy in the financial sector, while expanding our scope to find a handful of hiqh-quality blue chip stocks that have impressive fundamental strength. 

We also only included stocks that boast consensus recommendations of Buy or better at S&P Global Market Intelligence. The research firm scores analysts' ratings on a five-point scale, with 1.0 being the best (Strong Buy) and 5.0 being the worst (Strong Sell). To make this list, stocks needed a score of 2.5 (Buy) or lower. 

With that in mind, here are the best financial stocks to buy.

Data is as of July 10. Analysts' recommendations and other data courtesy of S&P Global Market Intelligence and Morningstar, unless otherwise noted. Stocks are listed by analysts' consensus recommendation, from lowest to highest.

Deborah Yao
Contributing Writer, Kiplinger.com

Deborah Yao is an award-winning journalist, editor, and personal finance columnist who has held editorial roles at Kiplinger, The Wharton School, Amazon, The Associated Press, S&P Global (SNL Kagan) and MarketWatch. She specializes in writing and editing articles on finance and technology, with particular expertise in the areas of stock analysis, monetary policy, fintech, blockchain, macroeconomics, financial planning, taxes, among others. She has been published in The New York Times, USA Today, CBS News, ABC News, Wharton Magazine, and many other news outlets.