Experts Pick Their Top Financial Stocks for 2025
These intriguing names from the financial services sector have been selected as top investment ideas for the year ahead.
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A new year brings about many familiar rituals for market watchers. Investors closely watch Wall Street gauges and indicators such as the Santa Claus rally, the 'First Five Days' barometer, and the "January" barometer. And, of course, analysts and firms present their annual market outlooks and top stock picks for the year ahead.
Each year for the last few decades, MoneyShow reaches out to experts to get their favorite investment ideas for the coming 12 months. The result is their annual “Top Picks” report.
The following selections from that 90-page report, are probably not household names to most investors.
Tim Melvin Melvin Real Income Report
Top Picks 2025: Nomura Holdings
Nomura Holdings Inc. NMR, established in 1925, is Japan's largest investment bank. Think of it as Japan's equivalent to Goldman Sachs Group Inc. GS or Morgan Stanley MS, but with a distinctive Eastern approach to banking and investment, observes Tim Melvin, editor of the Melvin Real Income Report.
The bank operates through multiple business segments, each serving a specific purpose in its overall strategy. The retail division functions as the company's backbone, serving individual investors throughout Japan. Imagine a vast network of branches where Japanese citizens, known for their high savings rates, come to invest their money and seek financial advice.
The wholesale division operates much like an international bridge, connecting global markets through trading and investment banking services. When a European company wants to raise capital in Asian markets, or a Japanese corporation needs to execute a complex derivatives trade, Nomura's wholesale division makes this possible.
The company's shares trade at 0.64 times book value, which means investors can essentially buy one dollar of Nomura's assets for 64 cents. To put this in perspective, imagine being able to buy a house worth $400,000 for just $256,000.
Nomura's 2024 strategy reveals a thoughtful approach to growth and development. The company aims to achieve an 8%-10% return on equity (ROE) by 2030. While 8%-10% might seem modest compared to some Western banks, it represents a significant improvement from their current 4.5% ROE.
The strategy includes three key elements:
First, they're expanding their global presence, particularly in high-growth markets like India and the Middle East. This is similar to establishing new trade routes — creating pathways for capital to flow between developing and developed markets.
Second, they're strengthening their wealth management services. As Japan's population ages, the need for sophisticated investment and retirement planning grows.
Third, they're investing in digital transformation and sustainable finance. Think of this as modernizing their infrastructure while preparing for future changes in how financial services are delivered and evaluated.
Despite Nomura's solid foundation, global reach, and clear strategic direction, investors value it at a significant discount to its net worth. For investors, Nomura presents an interesting case of potential value.
While Nomura declares and pays a dividend based on profitability rather than a fixed payout, the current pace indicates a yield of roughly 4% for 2024. Under the current policy, Nomura targets a consolidated payout ratio of at least 40% of their semi-annual earnings. This means that for every 100 yen they earn in profit, they aim to return at least 40 yen to shareholders through dividends.
Nicholas Vardy The Global Guru
Top Picks 2025: Federal National Mortgage Association
Federal National Mortgage Association FNMA, or “Fannie Mae”, provides a source of financing for residential mortgages in the United States. The company is a government-sponsored, stockholder-owned corporation chartered by Congress to provide liquidity and stability to the United States housing market. I see three bullish supports for the stock as a speculative play, says Nicholas Vardy, editor of The Global Guru.
1. Strong Value Proposition: Fannie Mae has an exceptional ValueRank of 97, making it one of the most attractive stocks on valuation metrics. Its Price-to-Book Value and Price-to-Sales ratios are notably low (0.02 each), indicating significant undervaluation compared to peers in the financial sector.
2. High Momentum with Substantial Price Gains: Fannie Mae’s MomentumRank is a high 99, reflecting strong recent price performance. One-year relative strength is up by 151%, and shorter-term gains are nearly 100% over one and three months. This momentum suggests investor confidence and rising interest in the stock.
3. Consistent Revenue Growth: The company has shown stable revenue growth, with a 9% revenue increase for the nine months ended September 2024. This growth underscores Fannie Mae's ability to generate consistent income amid changing market conditions, solidifying its role in the US housing finance market.
The regulatory backdrop here is crucial. Fannie Mae's share price jumped sharply following Trump's win. This surge reflects the market's anticipation of potential policy changes under a Trump Administration, particularly regarding Fannie Mae's conservatorship.
Trump is far more likely to end FNMA's conservatorship than a Harris Administration would have been. There are no guarantees that Trump will end the conservatorship, as he did not do so in his last term. That said, with his focus on cutting government bureaucracy, such an exit seems more likely in his second term.
Equally importantly: It is still unclear how much of the value of any exit from conservatorship would accrue to equity owners, as the US Treasury owns a substantial amount of preferred stock. So, think of any position you take in FNMA as a call option – highly volatile with terrific potential upside, but with the benefit of the option not expiring or experiencing time decay.
Tim Plaehn The Dividend Hunter
Top Picks 2025: Hercules Capital
There has been a massive shift from companies quickly going for Initial Public Offerings to staying private for much longer (or never going through an IPO). The growth in the number of companies staying private is reflected in the growth of private credit — and Hercules Capital Inc. HTGC benefits, says Tim Plaehn, editor of The Dividend Hunter.
Economist John Mauldin shared some fascinating figures in one of his recent newsletters...
- In 1996, 8,090 companies were listed on the US stock market.
- As of April 2024, only 4,300 companies were publicly listed.
- Over the last 20 years, the number of companies in the US backed by private equity firms climbed from 1,900 to 11,200.
Meanwhile, a September 2024 report from McKinsey noted this: “Private credit has been one of the fastest-growing segments of the financial system over the past 15 years. The asset class, as commonly measured, totaled nearly $2 trillion by the end of 2023, roughly ten times larger than it did in 2009.”
Many financial services companies are focused on growing their private credit lending. Business Development Companies (BDCs) are publicly traded companies that have operated exclusively in this field for decades.
According to its website, HTGC is the largest BDC focused on venture lending and the lender of choice for innovative entrepreneurs and their venture capital partners. Investing in BDCs is about earning an attractive dividend yield. Launched with a 2005 IPO, HTGC has paid continuous quarterly dividends coupled with regular supplemental dividends.
HTGC did reduce its regular dividend during the Great Financial Crisis. Since then, though, the regular dividend has doubled from $0.20 to $0.40 per share. When net investment income allows, HTGC will pay a supplemental dividend along with the quarterly payout. Here are the supplemental totals for the last four years:
- 2021: $0.26 per share
- 2022: $0.60 per share
- 2023: $0.32 per share
- 2024: $0.32 per share
At the recent share price of $18.85, HTGC yielded 8.5% on the regular dividend rate. Investors in this BDC can expect regular dividend increases plus a steady stream of supplemental dividends.
The proof is in the investment results. Since the end of 2009 (when the dividend was cut), HTGC has earned a total return of 683%. Of that, 81% was share price appreciation. Investors have earned 600% on their HTGC investments in cash dividend income over the last 14 years.