Red Flag Alert: 3 Financial Services Firms to Sell Now
Recently, Fed Chairman Jerome Powell reignited the market.
“Inflation has eased from its highs, and this has come without the significant increase in unemployment — that’s very good news,” Powell said.
Indeed, the Fed may cut interest rates if inflation stays low and other economic metrics continue to improve. The question is, when will this happen, and what sectors will be affected? While lower interest rates can stimulate the economy and make investors bullish, it can also hurt some sectors, like financial services firms.
And, changes in the interest rates can have a broad impact. It could affect yields in fixed income, potentially distorting assets, lowering fee income, and reducing assets under management. Hence, this is an opportunity for investors holding financial services stocks to consider recalibrating their exposure to such stocks. So, these three companies should be on your short list of financial services stocks to sell.
AlTi Global, Inc. (ALTI)
The asset and wealth management firm of AlTi Global, Inc. (NASDAQ:ALTI) has fiduciary capabilities alongside advisory and alternative investment strategies.
Its operations are classified into two main segments. Asset Management facilitates investments in private & public real estate, fund management, and co-investment solutions. Wealth Management caters to its high net-worth client base of foundations, single-family offices, and endowments globally. Also, the company operates in merchant banking in its advisory services.
Yet, ALTI experienced a weak quarter, with revenue declining by 5% and total expenses increasing by 15% quarter over quarter. Adjusted EBITDA ended at negative $3 million due to foreign currency translation losses and goodwill impairment charges due to restructuring.
Further, a 2% increase in Wealth Management revenue came on the back of a 22% increase in operating expenses, affecting EBITDA for the segment. Also, Asset Management experienced an 18% decrease in revenue, suggesting instability and business challenges. The overall negative trend in revenue, rising expenses, and impairment charges make a compelling case to sell ALTI stock.
Great Elm Group, Inc. (GEG)
Great Elm Group, Inc. (NASDAQ:GEG) specializes in alternative asset management. The company focuses on various asset classes and grows them in a scalable portfolio of long-duration and permanent capital vehicles.
GEG owns various subsidiaries that operate its investments in industrial-focused real estate investment trusts, acquisitions, and other investments. Recently, the company has changed some of its management by appointing Jason Reese as its new CEO and Keri Davis as CFO.
While GEG posted positive revenue growth for Q1 of 2024, the glaring concern is that all the growth came from Great Elm Capital Corp’s substantial incentive fees. This undue reliance on a single revenue stream poses a long-term risk and makes the company vulnerable to sudden market environmental changes.
GEG announced a $10 million stock repurchase program to be taken as a sign of confidence. Unfortunately, it doesn’t offset the above vulnerabilities. Hence, investors should stay away from GEG for now and look for better opportunities.
Finance of America Companies Inc. (FOA)
Finance of America Companies Inc. (NYSE:FOA) is a consumer lending platform. It offers flexible solutions to customers seeking access to specialty finance, including home improvement loans and reverse mortgages.
The company operates segments like portfolio management, loan securitization, product development, and asset management. Additionally, FOA has retirement solutions for clients looking to meet their financial goals. So, they provide services like loan origination, home improvement loans, and reverse mortgages.
According to its latest financial report, FOA experienced a significant net loss. This was primarily due to negative fair value changes in its long-term assets and liabilities. However, some positive news included funded volumes for home-equity conversion mortgages, which grew 18%. And corporate overhead expenses declined 17% quarter over quarter.
However, the home improvement platform’s substantial losses, downward pressure on its margins, and challenges in operations overshadow the positive numbers. All this happened despite Finance of America having a sizable market share in the HECM Reverse mortgage market. As a result, FOA is the last on this list of financial services stocks to sell right now.
On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
