Top 3 Finance Stocks to Hold for Strong Returns This Quarter

Key Points

• As the finance industry keeps expanding over the past quarter, investors will profit from keeping these stocks in their portfolio for the next quarter.
• Fundamental trends are happening right now that make these business models potential winners coming up.
• Wall Street analysts and institutional buyers agree on the upside present in these stocks today.

There is an approach that the biggest hedge funds and investment banks use in their daily operations to come up with the best trade and investment ideas, and it is what most might call a “top-down” approach. In this methodology, analysts are tasked with breaking down trends in the global economy, industries, and other indicators to know where to start looking in the first place.

Luckily, retail investors don’t have to be part of a hedge fund or an investment bank to copy this methodology and approach, as today, there is one clear trend pointing to the finance sector. Through the services PMI index, and its industry breakdowns, there is a clear trend favoring the finance space and its expansion during the past three months, meaning the odds of rising earnings for the next quarterly announcement are higher, and that means higher stock prices.

But not all stocks in that space are made equal, and for reasons that will become clear in just a minute, names like Robinhood Markets Inc. NASDAQ: HOOD, SoFi Technologies Inc. NASDAQ: SOFI, and even Affirm Holdings Inc. NASDAQ: AFRM could be top choices for investors to consider today. These stocks should be part of anyone’s portfolio as the industry keeps expanding due to other economic factors.

Rising Inflation Fuels User Growth on Robinhood, Catching Wall Street’s Attention

As inflation rates in the United States stay above the Federal Reserve (the Fed) target of 2% for longer, investors need to start looking for alternatives to their below-average yields in commercial bank savings accounts. Today, Robinhood offers an industry-leading yield on idle cash deposited on its platform.

But that’s not all. The brand is becoming increasingly popular with the next generation of investors, who are not only more technology savvy but also have more resources than ever at their disposal to make investment decisions. Wall Street is well aware of this shift from legacy platforms into Robinhood instead.

That is why analysts at Goldman Sachs have recently boosted their ratings on Robinhood stock from a “Neutral” view to a “Buy.” At the same time, they also boosted their price targets from $40 a share previously to a much higher $46 a share. To prove this new view right, Robinhood stock would need to stage a rally of up to 10.3%, not to mention a new high for the year.

Knowing that Robinhood is riding on broader economic and industry tailwinds today, those at State Street also saw it fit to boost their holdings in the company by 8.7% as of November 2024. This new allocation brought their investment in Robinhood stock to a high of $317.5 million, or 1.5% ownership in the company.

Bottoming Mortgage Trends Signal Potential Upside for SoFi Stock

Another branch of the finance space that could be termed an underwater volleyball waiting to pop out higher is real estate. Specifically, the mortgage market. As the rallies in bond prices lately bring yields lower, mortgage rates will come down as a result as well.

These lower rates will make it more accessible for would-be homebuyers to enter the market, which is near a bottom according to historical levels. The mortgage market index is now at a 1996 low, and as the only way it can go from here is higher, it means that SoFi stock will likely be in the eye of the storm to profit from the turn.

The best part about this stock is the high short interest, which is reported at 14.4% as of November 2024. This is considered to be a high level of short positions in the stock, which could trigger what’s known as a short squeeze. This scenario develops when many short sellers are forced to buy the stock and close positions due to sharp rallies.

Considering that SoFi stock has gone up by as much as 34.6% over the past month alone, the bullish momentum currently present in the name could cause further upside shocks to short sellers, amplifying a potential follow-up rally. Wall Street analysts and their earnings per share (EPS) projections would agree with this outcome.

Up to $0.10 in earnings is the goal for the next 12 months, which would be a 100% increase from today’s $0.05. As EPS typically drive stock prices, a doubling in SoFi stock could be the definite trigger of this potential short squeeze.

Why Analysts Are Raising Their Price Targets on Affirm Stock Recently

As of December 2024, Goldman Sachs saw enough reasons to keep their “Buy” ratings on Affirm stock and boost their price targets to a high of $78 a share today. This new target would call for a net upside of as much as 8.6% from where the stock trades today, which seems conservative.

Over the past month alone, Affirm stock has rallied by up to 47.3%, making this single-digit upside a bit minuscule in the face of what could be coming for the company. As inflation pressures persist, consumer credit platforms will be called on to help consumers manage through rising costs as wages stay behind.

This is why Wall Street analysts expect Affirm to swing into net profitability in the next 12 months, as judged by their EPS projections today. With this view in mind, those at Charles Schwab decided to boost their Affirm stock holdings by 44% as of November 2024, netting their position at a high of $89.9 million today, another vote of confidence for investors to consider.