We recently published a list of The 9 best financial services stocks to buy now. In this article, we take a look at where Mastercard Incorporated (NYSE:MA) is performing compared to other stocks in the financial services sector.

Despite significant turbulence in financial markets in August, the global financing situation remains stable. Despite significant declines in equity and corporate bond markets, financing conditions have not tightened significantly, suggesting resilience in borrowing.

However, after a decline of almost 10%, the broad U.S. stock market is still 5% below its July peak. Similar declines have been seen in European stocks, although there has been some recovery there; the market of the 500 largest companies is up 3% since its August low.

Corporate bond markets have also been affected. Higher-rated corporate bonds have seen risk premiums rise, but not enough to significantly affect credit conditions. The current market volatility has not significantly affected corporate or household financing conditions, according to Chris Jeffrey of Legal & General Investment Management. This view is supported by a major global financial institution’s financial conditions index, which indicates that while conditions have tightened since mid-July, they are still historically loose and more accommodative than during much of last year.

Amid the financial turmoil, the financial services industry has faced challenges but has also shown resilience. The long-term outlook for the industry remains positive. As we mentioned in our article: “The 25 largest financial companies in the world“The financial services industry is expected to grow at a compound annual growth rate of 7.7% over the next few years, from $31,138.82 billion in 2023 to $33,539.52 billion in 2024.. In 2023, Western Europe had the largest share of the financial services market, with North America in second place. Financial services are being transformed by generative AI, offering opportunities 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 right operating model. 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 percent to 4.7 percent of industry revenue, primarily through increased productivity. A new study by MGI examined the use of Gen AI at 16 of the largest financial institutions in the U.S. and Europe, which collectively manage nearly $26 trillion in assets. According to the study, more than half of the organizations studied have adopted a more centrally controlled structure for next-generation AI, even if their current data and analytics architecture is relatively decentralized. In addition, according to EY, artificial intelligence is transforming financial markets by improving risk management and enhancing the customer experience due to its wide range of uses.

RSM US’s Financial Services Industry Outlook 2024 also notes that the financial services market is evolving rapidly, with a focus on responsible AI in insurance. Similar measures are also being taken by states. For example, insurance companies are required to California Consumer Privacy Act to explain how AI is used in pricing and coverage decisions; violations result in heavy fines. Second, the number of customer-friendly investment products is also increasing. Retail investors are the focus of growing interest from asset managers, exchanges and broker-dealers. Finally, the actual exposure of financial institutions to CRE maturities is another trend in the financial services industry. Therefore, financial institutions analyzing CRE-related risks should conduct a thorough credit risk assessment.

Methodology:

We sifted through the holdings of financial services and financial media ETFs to create an initial list of 20 financial services stocks. Then we selected the 9 stocks with the highest upside potential. The stocks are sorted in ascending order of their upside potential.

Due to our methodology, we excluded some heavyweights in the financial services industry because they had a negative consensus on upside potential.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (See more details here)

A woman uses a payment terminal at the checkout of a store and shows payment products and solutions.

Mastercard Incorporated (NYSE:MA)

Analysts’ upside potential: 9.52%

Mastercard Incorporated (NYSE:MA) is a leading multinational payments technology company that facilitates communications between financial institutions, retailers, governments and consumers in more than 210 countries and territories.

In a world where 85% of retail transactions are still made by check or cash, the company continues to grow. In addition to payment gateway services, Mastercard offers a variety of payment options such as debit, credit and prepaid cards.

Mastercard reported strong financial results in the second quarter of 2024, with profits up 17% year-over-year to $3.3 billion. Earnings per share, excluding non-recurring costs, were $3.59, above market forecasts of $3.51. In addition to beating market forecasts, revenues increased 13% year-over-year to $6.96 billion. Growth in key international markets such as Europe and Latin America, as well as a solid U.S. customer base, contributed to the impressive results.

In July 2024, Mastercard’s cross-border volume increased 17% year-over-year, indicating a strong increase in travel demand. This growth helps the company maintain its strong global presence. Maintaining a competitive advantage over rivals such as Visa has been made possible by the company’s international growth strategy, particularly in Europe and Latin America.

Even though Mastercard Incorporated (NYSE:MA) delivered strong results, consumer spending could decline, with switched volume growth slowing to 10% in the second quarter of 2024 from 12% in the first quarter of 2024.

Because the company depends on consumer health, it is vulnerable to economic downturns, especially if spending is curtailed as a result of Fed interest rate hikes. In addition, pressure on low-income customers may affect transaction volumes, which could threaten long-term expansion.

Logan Purk, technology analyst at Edward Jones, said: “Mastercard’s results, while not perfect, should provide reassurance that the spending environment remains solid.”

L1 Capital International Fund stated the following about Mastercard Incorporated (NYSE:MA) in its second quarter 2024 investor letter:

Given the strong international growth and strong financial performance, 26 analysts have collectively rated the stock as a “Buy.” The average price target suggests a potential gain of 14.11% from the current share price of $108.18.

Total MA 6th place on our list of the best financial services stocks to buy. While we recognize MA’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than MA but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.