We recently compiled a list of the 9 Best Financial Services Stocks To Buy Now. In this article, we are going to take a look at where Bank Of America Corporation (NYSE:BAC) stands against the other financial services stocks.

Although there was significant turbulence in the financial markets in August, the state of global financing is still stable. Despite considerable falls in the equities and corporate debt markets, financing conditions have not tightened significantly, suggesting borrowing resilience.

However, following an almost 10% drop, the broad US stock market is still 5% below its peak in July. Similar declines have been seen in European stocks, although there has been some recovery in these markets; the 500 large companies market is up 3% from its August low.

The markets for corporate bonds have also been impacted. Higher-rated corporate bonds saw an increase in risk premiums, but not to the point where it materially affected borrowing conditions. The current market volatility, according to Chris Jeffrey of Legal & General Investment Management, hasn’t affected corporate or household finance conditions significantly. This perspective is supported by the financial conditions index of a major global financial institution, which indicates that while circumstances have tightened since mid-July, they are still historically loose and more accommodating than they were for a large portion of the prior year.

Amidst the financial turbulence, the financial services industry has faced challenges, but it also showed resilience. The long-term outlook for the industry remains positive. As we have mentioned in our article, “25 Biggest Financial Firms in the World,” the financial services industry is expected to rise at a CAGR of 7.7% over the next few years, from $31138.82 billion in 2023 to $33539.52 billion in 2024. In 2023, Western Europe accounted for the largest portion of the financial services market, with North America coming in second. Financial services are transforming as a result of generative AI, which presents chances for creativity and efficiency.

The McKinsey Global Institute (MGI) claims that banks are racing to implement Gen AI and that its full potential can be realized with the correct operational model in place. According to MGI, the use of Gen AI in the global banking market has the potential to generate value of $200 billion to $340 billion per year, or 2.8 to 4.7 percent of industry revenues, primarily through increased productivity. A new study by MGI examined the usage of Gen AI by 16 of the largest financial institutions in the US and Europe, which together manage assets worth close to $26 trillion. According to the study, more than half of the organizations examined have embraced a more centrally driven structure for next-generation AI, even if their current data and analytics architecture is relatively decentralized. Moreover, artificial intelligence, according to EY, is changing financial markets by improving risk management and enhancing customer experience due to its wide range of uses.

The RSM US’s Financial Services Industry Outlook 2024, also notes that the financial services market is quickly evolving, with a focus on responsible AI in insurance. Similar actions are being taken by states as well. For instance, insurance companies are required by the California Consumer Privacy Act to explain how AI is used in pricing and coverage decisions; violation carries hefty fines. Secondly, the number of retail-friendly investment products is also increasing. Retail investors are the focus of growing interest from asset managers, exchanges, and broker-dealers. Finally, the real exposure of financial institutions to CRE maturities is another trend in the financial services industry. Hence, financial institutions analyzing CRE-related risk should conduct a thorough credit risk evaluation.

Methodology:

We sifted through holdings of financial services ETFs and financial media to form an initial list of 20 financial services stocks. Then we selected the 9 stocks that had the highest upside potential. The stocks are ranked in ascending order of the upside potential.

Some big shots in the financial services industry have been left out owing to our methodology since they had negative consensus upside.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

A professional banker providing consultation to a customer in the security of his office.

Bank Of America Corporation (NYSE:BAC)

Analysts’ Upside Potential: 9.22%                

In terms of total assets, Bank of America is the second-biggest commercial bank in the US. Boasting a significant retail banking presence throughout all major U.S. regions, Bank of America Corp (NYSE:BAC) provides services to about 69 million individual and small business customers.

BAC has created a strong brand presence and ease of use for its customers with about 3,800 retail financial locations, 15,000 ATMs, and top digital banking systems. The digital platforms of the bank boast an approximate user base of 46 million, comprising 38 million active mobile users. This suggests that the bank has effectively shifted to digital banking and is capable of meeting the changing demands of its clientele.

Global Wealth & Investment Management (GWIM), Global Banking, Global Markets, and Consumer Banking are BAC’s four primary business segments. By diversifying its business, BAC is able to provide a broad range of banking and nonbank financial services and products while reducing the risk of market and industry-specific downturns.

Bank of America has put in place initiatives that help both customers and staff. The most sophisticated and first publicly accessible virtual financial assistant, Erica, was introduced in 2024 and as of 2024, more than two billion clients had engaged with them. Erica’s skills assist corporate and individual clients throughout the company, including CashPro, Benefits, and Merrill.

BAC raised its minimum hourly wage to $23 in September 2023, with intentions to raise it to $25 by 2025.

Strong performance in the investment banking segment and solid net interest income helped Bank of America Corporation (NYSE:BAC) submit an earnings report card for the second fiscal quarter that was better than anticipated. The price of the shares increased by over 5% as a result of the earnings report, reaching a high not seen since the start of FY 2022.

In general, Bank of America’s robust revenue from trading and investment banking, along with a favorable projection for net interest income, points to the company’s durability and growth potential even in an environment where the fed is trying to curtail inflation. However, increased deposit costs and growing provisions for credit losses are eating into profitability.

ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:

BAC is one of the Best Financial Services Stocks To Buy Now since it has promising growth potential, as seen by 19 analysts, BAC has a consensus Buy rating with an average price target of $42.39 and an upside potential of 9.22% from the current stock price of $38.81.

Overall BAC ranks 7th on our list of the best financial services stocks to buy. While we acknowledge the potential of BAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.

Tyler End, CEO and Co-Founder of Retirable, who is a Certified Financial Planner, had someone come in [to his office] a couple of years ago. They said, “‘Hey, we really want to buy a house,’ but they had all these little debts [that could impact their interest rates],” said End.

Explore More: 7 Worst States To Buy Property in the Next 5 Years, According to Real Estate Agents

Read More: 7 Reasons You Must Speak To a Financial Advisor Before Spending $50,000 or More

“They had a couple of credit cards they weren’t paying off on time; there were car loans, and stuff like that, and pretty high interest rates.”

End told them, “Before you buy this house, you want to get all this stuff in order.”

The clients had a substantial amount of money in their investment accounts, considerable money in their checking accounts, but they were carrying all these debts, said End.

“We came up with a strategy where we, one by one, focused on using their funds and prioritized those debt payments.

“We knocked four or five of those credit lines off, and before they applied for their mortgage, they were able to get a better interest rate.” The client bought a house this year.

This scenario is just one of many ways financial advisors help their clients get all their ducks in a row, so they can lock in lower interest rates and make better financial decisions before investing in a home purchase. Here are five reasons why you should speak to a financial advisor before you buy a home in the next five years.

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1. Gets the Best Financial Outcome By Planning Early

When you’re thinking of buying a home is the time you should start talking to a financial advisor. The sooner, the better, said End.

“A lot of what you need to get the best financial outcome of the purchase, a financial advisor is going to help you with.”

End said that the right ratio of your savings should be going toward paying down debt, saving for retirement, and building up a cash or checking account so you can put down a bigger down payment.

Check Out: Mortgage Rates Are Dropping: 20 Housing Markets With the Most Affordable Home Prices

2. Helps You Make Optimal Use of Your Money

Every time money comes in, ask yourself these questions:

• Should I put it in my emergency fund checking or savings?

• Should I save it for retirement or lock it into an IRA or 401K?

• Or should I use it to pay down debt?

“If your goal is to buy a house in five years, a financial advisor [will] tell you the optimal use for those dollars,” said End.

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3. Shows You How To Reach Your Home Buying Goals

A financial advisor can give you a strategy for paying down debt, so it lowers your credit ratio and you’ll get a better credit rating for the mortgage, said End.

“Having a bigger down payment as your mortgage payment will be less when you actually buy the house;

End said that if you’re putting too much in your retirement accounts, you might have to delay buying a house because you won’t have enough [money] in your bank accounts for the minimum down payment.

“If you know what that goal is, the financial advisor is going to help you get there and tell you the best way to do it.”

4. Explains the “Real” Cost of Buying a Home

People don’t necessarily budget appropriately when they think of buying a house; they get hung up on the mortgage, but that’s just one piece of it, End said.

A financial advisor can help you understand the realistic costs associated with owning a home.

“What we see often is people saying, ‘Okay I’m paying $3,000 for rent, so I’ll just have a mortgage that’s $3,000,’ but it’s not the same thing,” End said.

“Then you have to figure property taxes, homeowners insurance…then there are a lot of carrying costs associated with owning a home, not just upgrades but repairs.”

5. Advises You How To Set Up a Liquid Emergency Fund

A financial advisor can recommend strategies for saving your money that can be accessed and turned into cash right away. Certain financial products might yield a higher interest rate, but you won’t be able to access your money when you need it in any emergency.

End said people have told him they used a CD because it gave them 5% interest but when they needed to pay for a repair, they couldn’t access their money.

“What’s important here is you don’t lock up the money; that’s where people can get in trouble,” said End.

“Generally, you want to use something that is liquid, meaning you can access it at any time.”

Fortunately, because interest rates are high, End recommends using a high-interest checking account so you can get that money out tomorrow if you want.

“You can build up a big buffer of three to six months of your income for emergency savings that you can tap at any time, ” he said.

But he said that requires discipline and not to be like, “Hey, I want to go to Paris to go to the Olympics.”

“It should be held away, and [you shouldn’t] touch it unless it’s an emergency.”

More From GOBankingRates

This article originally appeared on GOBankingRates.com: 5 Reasons You Should Speak to a Financial Advisor Before You Buy a Home in the Next 5 Years

Berkshire Hathaway (BRK-B, BRK-A) is placing a bet on Ulta Beauty (ULTA).

On Wednesday, the Warren Buffett-led conglomerate revealed in a regulatory filing that it bought 690,106 shares in the beauty retailer in the second quarter, worth roughly $266 million as of the end of June. Ulta stock jumped over 11% on Thursday and continued to rally on Friday, up 14.6% since Berkshire disclosed its holdings.

The move is “a big stamp of approval,” BMO Capital Markets managing director and senior analyst Simeon Siegel told Yahoo Finance. “The beauty category has always been an attractive category.”

In addition to taking a stake in Ulta, Berkshire Hathaway added aerospace manufacturing company Heico (HEI) to its holdings and exited its positions in Snowflake (SNOW) and Paramount (PARA). Berkshire also trimmed shares of Apple (AAPL), among other names.

However, Berkshire’s stake in Ulta came as a surprise. The stock has had a tough year so far, though, which may have made it more attractive, in line with Buffett’s value-oriented investment philosophy. Shares of the retailer are down 23% since the beginning of the year.

“Warren Buffett is almost like the original value investor, and I think that that’s the way they looked at it,” said Loop Capital Markets managing director Anthony Chukumba, who has a Buy rating on Ulta stock. “We do like the fact that Berkshire got involved with the stock. It definitely lends credibility to the story.”

Ulta’s slowdown concerns

Ulta is one of the largest beauty retailers in the US and is set to expand into Mexico in 2025. In its most recent quarter, the company increased sales by 3.5% year over year to $2.7 billion, continuing a trend of strong growth and overall resilience in the beauty industry.

However, on April 2, Ulta Beauty CEO Dave Kimbell warned investors of “a slowdown in the total category across price points and segments.”

That spurred a sell-off in the stock, reflecting investors’ fears about a downturn in sales and increased competition from Sephora and Amazon (AMZN), particularly in the higher-end beauty segment.

According to Chukumba, those concerns seem “overblown.”

“Ulta has a great model,” he continued. “They have a completely debt-free balance sheet. They generate a ton of free cash flow. They buy back stock pretty aggressively. I think they’re going to initiate a dividend later this year, which will open up the stock to income investors as well.”

Siegel questioned whether Ulta is a healthy but more mature business or if it’s saturated and is no longer able to sustain its growth story.

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“Ulta and Sephora have revolutionized the way [the] consumer shops beauty the last 15 years,” Siegel said. “The business has dramatically taken … share away from department stores in favor of the specialty beauty retailers, which are predominantly Ulta and Sephora. They’ve done a phenomenal job.”

However, “Ulta has now pivoted or has now cycled into the next leg of its maturity,” Siegel continued. “It’s no longer growing at the same level that it was growing.”

He added that it will be up to management to prove to shareholders that it can still grow.

In May, CEO Kimbell told shareholders, “I remain confident in our differentiated model, the resilience of the beauty category, and our ability to execute against our plans, but we have adjusted our annual guidance as we anticipate the dynamics we faced in the first quarter to continue for the balance of the year.”

Kimbell announced that the company will share more details at its investor day in October about its plan to drive long-term share growth.

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