SOURCES: FEDERAL RESERVE; U.S. CENSUS
Q3 2014 2015 2016 2017 2018 Q2 2019
400
500
600
$700 billionU.S. RETAIL
SPENDING
NET U.S. BUSINESS
INVESTMENT
$520.1 B.
$608.9 B.
137
FORTUNE.COM // DECEMBER 2019
Townswick, director of equity strategies at
Conning, an asset manager serving the insur-
ance industry. Citizens Financial Group, based
in Providence, operates thousands of branches
and ATMs in 11 states, mostly in the Northeast,
where a strong economy is expected to fuel
steady growth. But its shares trade at less than
10 times estimated earnings for fiscal 2020.
More tricky is the realm of investment
management, where intense competition has
triggered a race to the bottom as providers
slash fees and commissions. Charles Schwab
shareholders have ridden a roller coaster in
2019—its shares are down nearly 11% in the
past 12 months, even though Schwab has deliv-
ered double-digit growth in revenue and earn-
ings. AllianceBernstein’s Tierney thinks that’s
a buying opportunity. “We view them as the
Amazon of the financial world,” he says. “Their
cost of service to clients is lower than anyone
out there.” That should enable Schwab to digest
its move to commission-free equity trades more
easily than many of its competitors.
With enterprises of all kinds grappling with
the rapidly evolving realm of digital payments,
no company is better equipped to serve them
than PayPal. PayPal is accepted by more than
three-fourths of the top 500 U.S. Internet
retailers and has an enviable position in mobile
money transfers via its Venmo platform. The
company trades like a tech stock, at 29 times
estimated earnings for fiscal 2020. But analysts
project that PayPal’s revenue will grow 17%
next year, justifying that valuation.Bold Bet
TIMES HAVE BEEN TOUGH for San Francisco–based
banking giant Wells Fargo as it struggles to
heal from the self-inflicted wounds of a fake-
accounts scandal and aggressive sales tactics.
Still, the bank is profiting from a sprawling
portfolio of consumer-facing services, includ-
ing mortgages, auto loans, and credit cards.
And with the well-regarded Charles Scharf, the
former CEO of BNY Mellon, recently installed
as chief executive, investors think Wells Fargo
could finally turn the page on its past. While its
shares are trading near a 52-week high, they’re
still priced below the average for the sector.in this issue.) And the whole sector tends to
fare worse in the event of a downturn. “Banks
look really cheap, but they have more head-
winds,” says Olivia Engel, CIO of active quanti-
tative equity at State Street Global Advisors.
To which some investors say: Sail into the
headwinds. “The markets are discounting
[banks] too much around the risk of a reces-
sion,” says Nathan Thooft, head of global asset
allocation at Manulife Asset Management. “As
long as the economy isn’t going into a recession
and you have decent credit growth, banks will
have benefits.”
Right now, those benefits seem more likely
to flow from consumer-facing companies
than from Wall Street dealmakers. Bank of
America has delivered solid earnings growth
under longtime CEO Brian Moynihan, who
has grown revenues while keeping expenses
in check. BofA has spent tens of billions of
dollars to develop and update its technological
infrastructure while simultaneously setting out
to upgrade thousands of branches and open
hundreds of new physical locations.
Other investors have spotted value in regional
banks, where differences among local markets
mean the top performers’ stocks tend to shine.
“You can find a lot more daylight between the
best and the worst of the regionals,” says DonPICKS
Bank of America
(BAC, $33)Citizens
Financial
Group
(CFG, $39)Charles Schwab
(SCHW, $44)PayPal
(PYPL , $101)Wells Fargo
(WFC, $54)PRICES AS OF 11/08/19Carry That Weight
Business investment in the U.S. has slackened in recent
months, but consumer spending is still rising steadily.