Investing $2,000 in Financial Stocks: Robinhood and Wells Fargo as Top Picks

While the financial sector may not be the most exciting area of the market, there are always opportunities to be found. From fintech to large money center banks, there are a number of stocks that are worth considering. In this article, we'll take a look at some of the best financial stocks to buy with $2,000 right now.

Robinhood: From Broker to the Retail Bank of Choice

The online broker Robinhood (NASDAQ: HOOD) is viewed as the pioneer of commission-free trading, opening stock trading up to the masses. While the company has encountered its fair share of challenges, Robinhood has transformed from an online brokerage to a platform that many now view as a full-service bank and prefer over traditional banks.

For just $5 per month or $50 per year, subscribers can get access to a strong yield on uninvested brokerage cash (currently 4%), the ability to make larger instant deposits, access to research and trading tools, and the ability to use margin, with the first $1,000 interest-free. Gold members can also get a 3% match on individual retirement account contributions, and the ability to use Robinhood's investment advisory services. All these products are wrapped into a sleek tech platform that is, in my opinion, much easier to use and navigate than those of some of the big players.

I particularly like how you can earn competitive yield on cash balances without locking them up for several months like in a certificate of deposit. This provides the flexibility to buy stocks when opportunities arise. In the first quarter, Robinhood increased Gold subscribers by 1.5 million year over year, reaching 3.2 million members total. On the earnings call, management said that 1-in-3 members who joined Robinhood in Q1 become Gold members very quickly, which is a great conversion rate. Meanwhile, other revenue, which is largely composed of Gold subscriptions, grew 54% year over year to $54 million in Q1 and made up close to 6% of total revenue.

The stock is undoubtedly expensive at about 53 times forward earnings, but Robinhood is really resonating with its customers and is likely to continue capturing a significant number of new investors. I also think the company will be able to raise the Gold subscription charge in time, especially as it adds new financial products to the platform.

Wells Fargo: No More Asset Cap

The large money center bank Wells Fargo (NYSE: WFC) had a monumental achievement in getting its asset cap removed. That cap had prevented the bank from expanding its balance sheet beyond $1.95 trillion in assets. The asset cap had been in place as a punishment for the bank's phony-accounts scandal, which came to light in 2016. Employees at the bank had opened millions of depository and credit card accounts without customer consent in order to meet performance quotas.

With Wells Fargo free of its asset cap and numerous other consent orders, it can really play offense for the first time in years. For large banks, expanding their balance sheets is the main way they make money – by adding deposits and making loans. Wells Fargo has long had a great commercial lending franchise in the U.S. When Charles Scharf was brought on as chief executive officer of the bank in 2019, not only did he work on the bank's regulatory infrastructure and remediating all the issues that got Wells Fargo into trouble, he also got the bank into fighting shape. He slashed expenses to get the bank more in line with peers, exited non-core businesses, and started to invest more in higher-returning businesses like investment banking and credit card lending.

While Wells Fargo is unlikely to pump the gas on growth too heavily right now, Chief Financial Officer Mike Santomassimo recently said he sees future opportunities in the bank's markets business (which has been constrained by the asset cap), consumer lending