The financial services sector includes banks, insurance firms, credit and payment processing companies, and real estate companies. It serves retail and commercial consumers. Two simultaneous trends in the financial services industry are specialization, or companies that provide targeted services to customers, and globalization, or expansion of firms into developing countries and emerging market nations. These are explicitly ignored in magic formula investing.
Berkshire Hathaway (BRK-A), the well-known most expensive stock in the world, is a multinational conglomerate initially composed primarily of insurance companies, including GEICO and National Indemnity. It now also owns companies involved in real estate, transportation, the furniture industry, and several jewelry companies, notably Helzberg Diamonds.
Directed overall by famed investor Warren Buffett, Berkshire Hathaway has an established record of financial success with companies that it has acquired over the years. One of its most recent acquisitions is the Burlington Northern Santa Fe railroad company.
American Express (AE), a Fortune 100 company and a component of the Dow Jones Industrial Average (DJIA), is a multinational firm offering a variety of credit card services worldwide. American Express is one of the oldest financial firms in America, dating back to 1850. It was one of the first companies to offer charge cards.
Despite competition from newer firms with more aggressive credit card marketing, such as Visa and MasterCard, American Express has continued to prosper. It attempted, but then abandoned, a foray into investment banking. More recently, it has continued to expand its credit card offerings, creating a number of co-branded cards with hotels and other travel services, as well as venturing into the prepaid card business. The elite status of American Express is demonstrated by its ability to offer a premium black card charging a hefty $7,500 initial fee.
Wells Fargo (WFC) is a global bank and financial services company. Measured by market capitalization, it is the largest bank in the United States, and it is among the 100 largest U.S. corporations.
Wells Fargo, with operations in over 30 countries, has the distinction of holding the first-ever bank charter issued in the U.S. The company made a major acquisition in 2008 when it bought Wachovia Bank, winning out over one of its major competitors, Citigroup.
E-Trade Financial Corporation
E-Trade Financial Corporation (ETFC ) was founded in 1982 as one of the first online discount brokerage firms targeting self-directed investors. It has continued to expand its business rapidly despite an influx of competition from older, much more well-established firms, such as Charles Schwab,
E-Trade has garnered industry awards for its trading platform and consistently ranks in the top three online discount stock brokerage firms in the U.S. Along with acquiring a number of other online brokerage firms, E-Trade has grown its business by offering banking services to its clients, notably sweep accounts that allow for automatic transfers back and forth between savings, checking and brokerage accounts.