3 lenders will bounce back amid today’s Fed decision

TThe Federal Reserve’s final monetary policy decision for 2021 is slated for this afternoon, when the Fed concludes its two-day monetary policy meeting. The public will hear the Central Bank Chairman Jerome Powell at a news conference scheduled for 2:30 p.m. ET.

Investors expect the Fed to accelerate the tapering of its bond-buying program and lay the groundwork for several rate hikes over the next year. Powell has finally begun in the past few weeks to acknowledge that current inflationary pressures may not be as “transitory” as he originally described, stating that “inflation risks have escalated” while unwinding the Fed’s bond purchases.

Even with retail sales down in November today, it’s likely Powell will stick with the script as the economy has shown signs of resilience this year. The Commerce Department said consumers spent a record $ 638 million in stores and restaurants in October, up 21% from pre-pandemic levels. With many shoppers starting to get their Christmas gifts earlier in the year, a slight slowdown in sales growth for November makes sense.

While the most optimistic economists are forecasting up to 8% GDP in the fourth quarter, Powell leaves even a 6% to 7% growth rate to begin the process of normalizing the business cycle and raising interest rates. From my point of view, this process should have started at this point and Powell needs to catch up now. Raising interest rates from this extremely low level should not be viewed as a negative. Rather, it is a sign that the economy is back on solid footing and can cope with higher borrowing costs.

As borrowing costs rise, lenders can lend more loans at higher interest rates. An increase in lending and related services creates more income for these businesses. Historically, financial stocks have performed relatively well in times of above-average inflation and rising interest rates.

The Zacks Financial – Consumer Loans industry group comprises the three lenders that we will discuss below and is in the top 39% of all 253 industry groups. This industry is located in the financial sector, which is in the top 13% of all Zacks sectors. Quantitative research suggests that about half of a stock’s return can be attributed to its industry grouping. Targeting stocks in top zack ranking industries can dramatically improve your stock picking success.

Mr. Cooper Group Inc. (COOP)

Mr. Cooper Group provides origination, quality service, and transaction-based services primarily to single-family homes in the United States. COOP, based in Coppell, TX, provides home loans with an emphasis on delivering credit products, services, and technology.

COOP trades at an attractive P / E ratio of 4.76, outperforming the market this year with a return of 29%. The home lender has posted an average positive earnings surprise of 16.14% over the past four quarters. COOP last reported earnings per share of $ 2.42 for the quarter ended September, a surprise of + 22.84% versus consensus.

Mr. Cooper Group (COOP) Prize, Consensus and EPS Surprise

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What the Zacks model reveals

The Zacks Earnings ESP (Expected Surprise Prediction) searches for companies that have recently seen positive activity revising earnings estimates. The technique has proven to be very useful for finding positive profit surprises. In fact, when you combine a Zacks # 3 rank or better with a positive earnings ESP, stocks produced a positive surprise 70% of the time, according to our 10-year backtest.

Analysts for the Mr. Cooper Group have raised their earnings estimates for the full year by 3.77% in the past 60 days. COOP has a Zacks # 2 buy rank along with a + 11.91% earnings ESP. Our model predicts a profit for COOP for the current quarter.

The current Zacks Consensus estimate for annual sales is $ 3.27 billion, up 19.78% from 2020. COOP’s next quarterly earnings announcement is scheduled for February 2ndnd, 2022.

Regional Management Corp. (RM)

Regional Management is a diversified, specialist consumer finance company, primarily providing credit products to clients who have limited access to consumer credit from banks, credit card companies, and other traditional lenders. RM is headquartered in Greenville, SC, with offices in South Carolina, Texas, North Carolina, Tennessee, and Alabama.

Trading at a very reasonable P / E of 6.61, Regional Management is a Zacks # 1 Strong Buy stock and has outperformed earnings estimates for each of the past five quarters. RM last reported earnings per share of $ 2.11 in November, a surprise of 34.39% versus estimates. The company recorded a surprise surprise of + 47.46% in the fourth quarter, which helped the stock gain over 80% for the year.

Regional Management (RM) price, consensus and EPS surprise

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RM sales are expected to increase by 13.85% compared to the previous year. Analysts at RM agree on earnings revisions and have raised their estimates for the full year by 9.21% over the past 60 days. The Zacks consensus estimate for earnings per share for the current year is now $ 8.18. If RM can simply meet this expectation, it would result in an incredible growth rate of 240.83% in 2020.

World Acceptance Corp. (WRLD)

World Acceptance is a consumer finance company providing short term small loans, medium term larger loans, credit insurance and related products and services for individuals. World Acceptance, headquartered in Greenville, SC, operates over 1,200 stores in 16 US states.

The WRLD share has risen by almost 130% this year and has thus slightly overtaken not only the market, but also the industry group. WRLD has delivered an average positive earnings surprise of 130.77% for the past four quarters, which has contributed to the stock’s astounding surge.

World Acceptance (WRLD) price, consensus and EPS surprise

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The current Zacks consensus estimate for full year revenue is $ 568.47 million, up 8.17% from 2020. Looking ahead to the next year, analysts expect sales to grow by 4.44% to $ 593.69 million. The next results report from WLRD will be presented on January 28ththat.

All eyes will be on the Fed decision this afternoon. Investors should keep an eye on these three lenders who are clearly outperforming.

5 shares set to double

Each was selected as the # 1 Most Popular Stock by a Zacks expert to gain + 100% or more in 2021. Previous recommendations increased by + 143.0%, + 175.9%, + 498.3% and + 673.0%.

Most of the stocks in this report fly under the Wall Street radar, which is a great opportunity to get in on the ground floor.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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