There are plenty of names to include on any list of financial stocks to sell, but this is not only because of the latest news from the Federal Reserve regarding its plans with interest rates.
As I’ve argued previously, “higher for longer” rates are bad news for financial stocks in two ways: reduced loan demand and squeezed net interest margins.
That said, along with further issues caused by this macro headwind, many financial stocks face institution-specific headwinds as well.
These include capitalization issues, issues with declining earnings, and other such red flags. With this in mind, let’s take a look at seven stocks in this category, and see why they should be considered financial stocks to sell right now.
Affirm Holdings (AFRM)
Affirm Holdings (NASDAQ:AFRM) is the leading provider of “buy now, pay later” installment lending services for e-commerce.
After achieving vigorous growth during the pandemic, Affirm was hit hard by changing macro conditions starting in late 2021.
AFRM stock crashed during the 2022 tech sell-off. Shares then languished for well over a year, as the macro changes led to slowing growth and ballooning losses. Late last year, AFRM bounced back by as much as six times its 52-week low, because of rising confidence about interest rate cuts.
However, shares have slid lower again. As InvestorPlace’s Alex Sirois recently noted, another red flag with Affirm is consistent unprofitability.
Even the most upbeat analyst forecasts call for net losses to continue through at least 2026. This suggests that improving macro conditions may not necessarily improve Affirm’s fiscal performance. Given both these factors, AFRM’s pullback may carry on.
Coinbase Global (COIN)
If you’re a Bitcoin (BTC-USD) bull, you probably think I’m shortsighted in saying that Coinbase Global (NASDAQ:COIN) is one of the top financial stocks to sell right now.
After all, BTC’s recent correction notwithstanding, increased investor inflows into BTC continue.
Bitcoin’s upcoming “halving” event could also serve as a continued catalyst for the currency. Then again, maybe not.
Some, like analysts at JPMorgan, believe that a post-halving plunge is coming. A fast fading to the latest Bitcoin boom could be bad news, for anyone bullish about continued strong results out of Coinbase.
If Coinbase’s operational rebound stalls, this could call into question the rich valuation of COIN stock. Shares currently trade at a steep 162.8 times forward earnings.
Hence, with COIN at high risk of a hard landing, the take-away is clear. Sell it if you own it, stay away if you’ve yet to buy.
Main Street Capital (MAIN)
Main Street Capital is one of the larger business development companies (BDCs). BDCs invest and lend money to middle market companies. Similar to REITs, BDCs pay out most of their earnings out as dividends, in a tax-efficient manner.
This makes BDCs popular with dividend investors. MAIN stock in particular is popular, not just for its 6.26% yield, but also because it pays out dividends monthly rather than quarterly. However, despite these appealing features, it may be best to skip out on Main Capital.
Why? MAIN has zoomed higher since November, thanks to rate cut optimism. However, as a result of this run-up, MAIN’s premium to its net asset value has become fairly high (58%).
If the Fed continues to walk back/delay its rate cut plans, shares could experience an intense price correction. Losses from this potential correction would likely outweigh the BDC monthly payouts.
New York Community Bancorp (NYCB)
I was once a New York Community Bancorp (NYSE:NYCB) bull. However, in more recent months, I’ve changed my tune.
If you’ve been following the news with NYCB, you know full well why I’m calling it one of the top financial stocks to sell.
NYCB stock has tanked so far this year, because of the announcement of large, unanticipated loan losses. Although some investors see a recent $1 billion capital infusion as a sign that the dust is settling, I’m not the only one skeptical that is the case.
Last week, Raymond James’ Stephen Moss downgraded NYCB to the equivalent to “sell,” citing the high likelihood of continued troubles ahead. Namely, issues with the regional bank’s $7 billion exposure to the rent-regulated, multifamily mortgage market.
This suggests that trying to bottom-fish in NYCB could end up more like trying to catch a falling knife.
Pacific Premier Bancorp (PPBI)
Pacific Premier Bancorp (NASDAQ:PPBI) is a regional bank, based in Irvine, California.
Like with other regional bank stocks, PPBI rose late year due to rate cut optimism, but in more recent months, analysts and commentators have become more downbeat about its future prospects.
For instance, back in January, Raymond James’ David Feaster, Jr. downgraded PPBI stock on valuation concerns. Per the analyst, Pacific Premier trades at too high of a premium to book value compared to its peers.
As Seeking Alpha commentator Sheen Bay Research argued last month, earnings for this bank may decline this year. Chalk this up to both flat loan growth, and falling loan balances.
A rich valuation and the prospect of earnings declines is a risky combination. Don’t get me wrong. PPBI is not as risky as NYCB. Still, with more out there suggesting lower prices away, selling now appears to be the sharper move.
B. Riley Financial (RILY)
Major red flags make B. Riley Financial (NASDAQ:RILY) one of the financial stocks to sell. This formerly obscure investment bank and holding company has been making headlines in recent months, and not in a good way.
As the Wall Street Journal reported last month, B. Riley’s dealings with financier Brian Kahn are now being scrutinized. Kahn was formerly CEO of Franchise Group, a company that B. Riley helped to take private.
While denying any connection, Kahn’s abrupt exit from Franchise occurred just as Kahn himself came under heavy scrutiny for his alleged involvement in a hedge fund collapse.
This controversy has placed pressure on RILY stock for months. It has also led to a delay in B. Riley’s filing of audited financial results.
With the resolution of these issues still a work-in-progress, and RILY facing a possible Nasdaq delisting due to the filing delays, consider it time to sell RILY.
Upstart Holdings (UPST)
On the surface, Upstart Holdings (NASDAQ:UPST) may seem like a stock ripe for a recovery. As you may know, this fintech firm specializes in AI software, used for credit underwriting purposes.
Despite the AI revolution and bullish market, UPST stock remains heavily-shorted at 37.1%.
As InvestorPlace’s Noah Bolton noted ahead of Upstart’s most recent earnings release, this fintech has continually reported lackluster results and disappointing guidance.
While results did beat expectations in the latest earnings release, guidance once again failed to deliver. Atop this downbeat outlook is UPST’s rich forward valuation (140 times estimated 2025 earnings).
Barring major surprises in upcoming earnings, the shorts will likely continue to be the winning side of this trade.
On the date of publication, Thomas Niel held Bitcoin. He did not hold (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.