The 5 Best Finance Stocks of the Decade

For those who were investing a decade ago, the financial crisis of 2008-9 is likely still a fresh memory. Those were dark times with few places to hide. For some, the financial crisis helped shape who we are today. That includes myself as I was still quite new to the game of investing and trying to forge a career path.

But investors who stuck with it after the Great Recession came away with invaluable lessons. These included how to spot a deal on a quality company, the importance of tuning out the news, and maintaining a long-term mindset. Even in some of the hardest-hit and ugliest-looking sectors of the economy -- such as financial stocks -- there were serious investment opportunities to be had.

Let's take a look back at the top-performing finance stocks of the 2010s and reflect on the lessons learned from the past decade.

Value stocks and distressed assets

Here are the top five financial sector companies in terms of their total return over the past 10 years:

All data as of Dec. 10, 2019. Data source: YCharts. TTM = trailing-12-month. 

One thing all five of these companies have in common: They were seemingly hanging on by a thread 10 years ago, some of them not even registering as a small-cap stock. Investors with iron stomachs who bought low and rode out the crisis have been more than handsomely rewarded. Investors who actually did scoop up distressed assets such as these and rode them to record-making returns are scarce, though. If you're one of them, introduce yourself.

Image source: Getty Images.

Cheap, but not for great reason

It's easy to look back and recognize great value stocks. It's also a good lesson in the importance of seeing beyond the hellacious news that investors often have to sift through.

First, there's LendingTree, the top finance stock of the 2010s and one of the best-performing stocks over the past decade, period. Financial aggregation tools have come into their own over the last 10 years, and LendingTree's tools to help consumers shop for and compare loans, credit cards, and other services have been a big hit. Revenue has grown 386% over the past decade, but free cash flow (money left over after cash operating and capital expenses are subtracted from revenue) is up over 1,360%. Thus the massive rebound for LendingTree's stock off of depressed valuations in 2009. The company continues to put up sizzling numbers, with sales up 51% through the first three quarters of 2019 -- helped in large part by its takeover of ValuePenguin, QuoteWizard, and Ovation Credit Services in 2018.

Then there's MarketAxess, which operates an electronic trading platform for corporate bonds and other fixed asset securities. The bond markets got a serious black eye during the financial crisis, and MarketAxess thus wasn't doing so hot. Despite choppy seas since then for the world economy, the company has rebounded and debt instruments remain an important market -- far larger than stock markets are, in fact. Revenue is up 18% so far in 2019 as trading volumes continue to rise, and the company is investing in new technology to expand relationships with bond investors -- including its recent takeover of U.S. Treasuries marketplace LiquidityEdge for $150 million. MarketAxess' operating profit margin is running at 49.4% over the past 12 months, making this highly profitable stock worth a look -- even after its epic run.

Fair Isaac, known by most as the provider of the FICO credit score, is actually a technology company. Fair Isaac offers a large gamut of services including financial and data analytics tools, as well as services that help businesses and consumers gain access to credit. As the company isn't a lender, it wasn't really in trouble in 2009 as many financial institutions were. However, decreased economic activity had taken a toll on sales, creating a stock that was trading at an extreme value at the time. As the economy has recovered, so has Fair Isaac -- and impressively at that. The share price is still growing by double digits, and though it isn't a value stock anymore, this small fintech outfit should have plenty of room to keep going.

For regional bank Western Alliance Bancorp -- which operates in Arizona, Nevada, and California -- things weren't great in 2008 and 2009. Free cash flow was negative at times during the Great Recession as core banking services suffered during the worst of the downturn. It hasn't been smooth sailing since, either. Banks have had to contend first with lower interest rates, and more recently rising interest rates, as well as disruption from digital payment companies -- which also put up great numbers for investors over the last decade. However, Western Alliance has been one of the best-managed banks in the industry, and it was ranked the No. 1 regional bank by S&P Global Market Intelligence in 2018. Revenue has soared 324% and free cash flow is up 784% over the last 10 years, and the stock's dividend currently yields 1.9% annually. Not a bad performance for the old and stuffy banking sector.

And finally, there's Axos Financial, which also had a rough go of things during the crisis years. The bank (formerly Bank of the Internet, or BofI Holding) has turned things around, though, going from cash bleeding operations to robust profit generation. It reported a total of $11.8 billion in assets on deposit in its most recent quarter. The company is disrupting traditional banking by distributing personal and business loans, advisory services, and other banking products online. Axos is benefiting as consumers become progressively more comfortable doing business online, and it recently returned to double-digit bottom-line growth during its fiscal 2020 first quarter.  

The lesson is clear: Even in incredibly challenging times, it pays to invest. In fact, the most profitable time to do so is when the majority is too fearful to put their money down on high-quality companies that will eventually rebound. The last decade of investing has demonstrated that, and the financial industry is a case in point.