Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. Market leaders have certainly capitalized on a favorable backdrop to boost profitability, helping fuel a 9% gain for the industry over the past six months. This performance has closely followed the S&P 500.

Although these firms have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from the incumbents. On that note, here are two financials stocks we think can generate sustainable market-beating returns and one we’re passing on.

One Financials Stock to Sell:

Prospect Capital (PSEC)

Market Cap: $1.30 billion

Operating as one of the largest publicly traded business development companies in the United States, Prospect Capital (NASDAQ: PSEC) provides debt and equity financing to middle-market companies across various industries.

Why Do We Pass on PSEC?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.2% annually over the last two years
2. Sales were less profitable over the last two years as its earnings per share fell by 7.3% annually, worse than its revenue declines
3. Tangible book value per share tumbled by 1.9% annually over the last five years, showing financials sector trends are working against its favor during this cycle

Prospect Capital’s stock price of $2.89 implies a valuation ratio of 5.3x forward P/E. Dive into our free research report to see why there are better opportunities than PSEC.

Two Financials Stocks to Buy:

Interactive Brokers (IBKR)

Market Cap: $27.78 billion

Founded in 1977 and known for its sophisticated trading technology and global reach across 150+ exchanges in 34 countries, Interactive Brokers (NASDAQ: IBKR) is a global electronic broker that provides low-cost trading and investment services across stocks, options, futures, forex, bonds, and other financial instruments.

Why Will IBKR Outperform?

1. Annual revenue growth of 22.7% over the last five years was superb and indicates its market share increased during this cycle
2. Additional sales over the last five years increased its profitability as the 27.4% annual growth in its earnings per share outpaced its revenue
3. Annual tangible book value per share growth of 20.2% over the last two years was superb and indicates its capital strength increased during this cycle

At $62.55 per share, Interactive Brokers trades at 31.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

American Express (AXP)

Market Cap: $222.1 billion

Recognizable by its iconic green logo and the slogan "Don't leave home without it," American Express (NYSE: AXP) is a global payments company that issues credit and charge cards, processes merchant transactions, and offers travel and lifestyle benefits to consumers and businesses.

Why Will AXP Beat the Market?

1. Share repurchases over the last five years enabled its annual earnings per share growth of 24.3% to outpace its revenue gains
2. Annual tangible book value per share growth of 13.1% over the past two years was outstanding, reflecting strong capital accumulation this cycle
3. Market-beating return on equity illustrates that management has a knack for investing in profitable ventures

American Express is trading at $319.75 per share, or 19.8x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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