With the second half of 2022 underway, it's safe to say that it has not been a great year for investors, with major indices like the S&P 500 and the Nasdaq Composite posting year-to-date losses of 20% and 28%, respectively. Financial stocks have been right in line with this performance -- the Financial Select Sector SPDR ETF is down 19% in 2022.
But smart investors know that generating significant long-term returns is not about the stock's price today or tomorrow. It's more important to think about where these stocks will be a decade from now. With that in mind, let's take a look at two great financial stocks that you should be happy you own a decade from now in 2032.
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1. Mastercard
Global payment network giant Mastercard (MA 0.31%) isn't going anywhere any time soon. If anything, it should become an even more crucial and deeply entrenched part of global commerce over the course of the next decade as growth in cashless payments continues to grow worldwide.
Investors who think that Mastercard will be disrupted by cryptocurrencies are likely to be wrong -- the $315 billion company should actually benefit from the rise of cryptocurrencies, as it is becoming more deeply involved in the space and can in some ways be seen as a pick-and-shovel play on the industry.
For example, Mastercard recently partnered with a slew of NFT (non-fungible token) marketplaces to allow customers to buy NFTs with their credit cards. Mastercard is also partnering with a variety of crypto exchanges, brokerages, and marketplaces to launch their credit and debit cards. Rather than a disruptor, crypto companies increasingly see Mastercard as a valuable partner to work with because it helps to give them access to its worldwide network of merchants and customers, which includes 90 million acceptance locations worldwide and 2.9 billion cards in circulation.
While this involvement in cryptocurrency is just a small part of Mastercard's business today, given the size and scale of the company, it is great to see management aggressively pursue new technologies and growth opportunities rather than resting on its laurels.
Some have questioned whether companies like Mastercard will be disrupted by Buy Now, Pay Later options like Affirm. But this seems unlikely -- these newcomers have learned that this can be a difficult market as conditions tightened in 2022. Furthermore, Mastercard is already rolling out its own BNPL offering, Mastercard Installments, and it likely will use its scale and existing relationships with merchants to put additional pressure on stand-alone BNPL companies and gobble up market share.
Mastercard returns capital to shareholders with share repurchases and announced a new $8 billion share buyback program at the end of 2021. While the company isn't cheap at 33 times earnings, its valuation comes down to 25 times next year's consensus earnings.
The company pays out a small dividend that currently yields under 1%, but it has been growing this dividend at a rate of at least 10% or more each year for the past eight years. If the company keeps up this pace, it could eventually be a significant dividend stock in your portfolio a decade from now, especially against today's prices.
2. Goldman Sachs
Leading investment bank and IPO specialist Goldman Sachs (GS 0.87%) is among the bluest of blue chip stocks, but its shares are down over 30% from their 52-week high. This is largely because the number of IPOs has slowed down due to the current unfavorable market environment.
While this is clearly a negative for Goldman's business, at some point the IPO business will come roaring back in the next bull market, at which point investors will feel good about buying Goldman's shares for just under 6 times earnings today. In the meantime, a 2.7% dividend yield helps to pad investors' returns while they wait.
Goldman Sachs has also successfully diversified into new revenue streams beyond its core investment banking. For example, it has gained considerable traction with Marcus, its consumer banking offering, and CEO David Solomon predicts that the consumer segment will grow from $1.5 billion to $4 billion by 2024.
While Goldman Sachs is over 150 years old, no one is going to disrupt this legendary investment bank. Goldman is on top of financial industry trends, getting into robo-advising through its Marcus business and recently wading into cryptocurrency.
For example, amid the current crypto sell-off, there were reports of Goldman Sachs exploring raising money to buy the assets of embattled lenders like Celsius. This is where a company like Goldman shines -- operating from a position of strength, with the talent and resources to adapt to changing market conditions and take advantage of opportunities that arise in the market.
Looking ahead to 2032
While investors have been hearing about fintech disruptors coming to overtake the legacy financial incumbents for years, in many ways, these top legacy players are adapting the same technologies as the disruptors, and they have the scale and resources to leverage them even more effectively.
Looking ahead to 2032, investors will be happy that they added blue chip financial industry leaders like Goldman Sachs and Mastercard to their portfolios during the choppy market environment of 2022, as they should continue to grow and reward investors over the course of the next decade.
