Despite the growing optimism regarding lesser regulations, improvement in economy and benefits from tax cuts, the performance of the finance sector has been quite bumpy so far this year. The U.S.-China trade war, Brexit-related uncertainty, inversion of the yield curve and the U.S. Federal Reserve’s aggressive stance related to interest rate hikes are some of the major factors that induced volatility in 2018.

As a result, the S&P 500 Index has lost nearly 1% year to date. The S&P 500 Financials (Sector) Index has decreased by 12.7% and the Finance Sector has witnessed a decline of 11.4% over the same time frame.

Notably, while the tariffs imposed on imports from China do not have a direct bearing on the financial stocks, the uncertainty related to the trade war has made investors wary of the performance of the overall economy. This indirectly affects the finance companies as the performance of the finance sector is linked to the nation’s health.

Moreover, British Prime Minister Theresa May’s tentative “withdrawal agreement” with the European Union (EU) failed to get an approval from her own party, increasing uncertainty over Brexit. Thus, the U.K is scheduled to leave the EU on Mar 29, 2019, even if there is no deal, which is likely to have an adverse impact on the global economic growth.

Further, yield curve inversion is bad news for the finance sector. The inversion of the yield curve means long-term rates are below short-term rates. Finance stocks (except REITs) benefit from steeping of the yield curve and the inversion will likely hurt the stocks’ financial performance. Further, many see inversion as an early indication of an impending recession.

Nonetheless, while these headwinds dragged down finance stocks in 2018, the story of 2019 seems to be in the making. The expectation of a peaceful agreement in connection with the trade war, an anticipated pick-up in the economy and favorable operating environment are expected to turn things around for financial stocks.

Selecting 2019 Finance Stock Winners

While the performance of financial stocks was disappointing this year, a few of them will likely witness a rebound in 2019 based on their strong fundamentals and solid earnings growth prospects.

Therefore, we have taken the help of the Zacks Stock Screener to shortlist stocks that currently carry a Zacks Rank #2 (Buy). Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment options.

Also, these stocks have lost more than 20% so far in 2018 and underperformed their respective industries.

Here are the three stocks that meet the criteria:

Essent Group Ltd.’s (ESNT - Free Report) shares have lost 20.6% year to date compared with the industry’s decline of 18.3%. With a market cap of $3.5 billion, the company provides mortgage and related services.

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The company’s Zacks Consensus Estimate for 2019 earnings has been revised 2% upward over the past 60 days. Moreover, its projected earnings growth rate for 2019 is 10.6%.

Citizens Financial Group, Inc. (CFG  - Free Report) has a market cap of $14.8 billion and offers an array of retail and commercial banking products and services to individuals, institutions, and companies. The stock has lost 26.4% year to date compared with 16.4% decline of the industry it belongs to.

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Its projected earnings growth rate for 2019 is 9.5%. Over the past 60 days, earnings estimates for 2019 have been revised nearly 1% upward.

Federated Investors, Inc. (FII  - Free Report) is an asset management company, having a market cap of $2.5 billion. The company’s shares have lost 31.7% year to date compared with the industry’s decline of 25.9%.

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Over the past 60 days, its Zacks Consensus Estimate for 2019 earnings has been revised marginally upward. Its projected earnings growth rate for 2019 is 8.4%.