If you’re looking to make a contrarian bet on banking, SoFi Technologies (NASDAQ:SOFI) may be a top choice. At first, you may question why I believe richly priced SOFI stock is one of the better banking buys.
However, filtering through the bank stocks, it’s easy to see why I’ve come to this conclusion. It’s merely a process of elimination.
If you remove what are for now the riskiest banking plays out there, this leaves you a plethora of venerable, “old school” financial institutions, plus more digitally focused names like this one.
Yet between the fact plenty of the big banks face hurdles from the current crisis, along with another important factor, it becomes more apparent why exclude them from your buy list/watchlist, and choose SoFi instead.
That’s not all. There are a few SoFi-specific factors that further strengthen the bull case.
| SOFI | SoFi Technologies | $5.14 |
SOFI Stock vs. Regional Banks vs. Big Banks
While the banking crisis is still ongoing, plenty of investors are interested in scooping up strong opportunities today, in the event of a big rebound for the sector, once current headwinds dissipate. Some of these investors may be interested in the regional banking stocks.
After all, plenty of them have rock-bottom valuations. However, there’s a good reason for this. Regional bank stocks remain heavily exposed to this crisis. As I have discussed recently there are two reasons for this. First, regional banks have a greater amount of uninsured deposits.
Second, regulation of regional banks is less stringent than it is for larger financial institutions. With this, I have recommended to tread carefully with regional banks, outright avoiding certain names.
I have also recommended staying away from many of the larger banking stocks, but admittedly a few of them are not “hard pass” situations.
Still, instead of buying the higher quality big banks, you may want to opt for SOFI stock instead. Again, valuation concerns may have you questioning this view.
Yet while some fundamentally-strong large-cap bank stocks may sport attractive valuations today, SoFi has something that these names lack. That would be high growth potential.
Well-Positioned to Make a Big Comeback
Back in March, when the failures of institutions like SVB Financial Group’s (OTCMKTS:SIVBQ) Silicon Valley Bank subsidiary kicked off the banking crisis, I argued that SoFi Technologies was not at risk of becoming another SVB.
Why? For one, SoFi has, and continues to have, a steadier base of small, insured deposits. In addition, its loan portfolio isn’t as exposed to long-duration assets.
As you may recall, heavy mark-to-market losses on its government bond portfolio (because of rising interest rates) threw Silicon Valley Bank into a liquidity crunch, ultimately resulting in its failure.
As this bank continues to have these strengths, it is better-positioned to ride out today’s crisis, relative to regional banks and many of the larger institutions. However, what makes SOFI stock potentially a more attractive banking play is the greater chance of a post-crisis comeback.
Larger bank stocks may just rebound to pre-crisis prices as the dust settles. SoFi, on the other hand, could move to prices well above pre-crisis levels (high single-digits). This is because this bank continues to grow at a rapid pace. While not yet profitable, a look at its latest results suggests it is getting close.
Bottom Line
On May 1, SoFi released its financial results for the quarter ending March 31, 2023. For the quarter, this fintech reported $472.2 million in revenue, up 43% year-over-year, and coming in ahead of analyst forecasts.
While reporting a net loss, losses came in lower-than-expected. Not only that, with SoFi’s deposit base still climbing, resulting in higher net interest margin, management slightly upped guidance for the coming quarters, and reiterated that it expects SOFI to report GAAP profitability by Q4 2023.
As InvestorPlace’s Eddie Pan reported May 9, SoFi CEO Anthony Noto continues to increase his position in the neobank via insider buying. This is another bullish indicator.
With fewer banking crisis risks, and with stronger growth potential than the big banks, it’s clear why SOFI stock is one of the stronger opportunities in the space.
SOFI stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.