How Ally Financial Can Overcome Short-Term Challenges and Deliver Long-Term Results

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Like many other financial institutions, Ally Financial (NYSE:ALLY) is dealing with the mistrust of skittish customers. Yet, ALLY stock should recover this year, and the company’s customers need not worry. After all, Ally Financial is well-capitalized and has a business model that should allow the company to withstand the current banking crisis.

Based in Michigan, Ally Financial has been around in one form or another since 1919. For generations, it’s been considered a safe, and perhaps boring, place to store one’s wealth.

In 2023, however, the financial sector isn’t boring anymore. There’s blood in the streets and panic in the air, but does this mean you should steer clear of Ally Financial? Whether you’re a customer or an investor, staying calm and learning the essential facts should benefit you in the long run.

ALLY Stock Suffers From Collateral Damage

The banking crisis of this year really had very little, if anything, to do with Ally Financial in particular. It was based on failing regional banks like SVB Financial Group (OTCMKTS:SIVBQ) subsidiary Silicon Valley Bank and Signature Bank (OTCMKTS:SBNY) over-leveraging themselves on bonds or cryptocurrency.

ALLY stock dropped from $30 to $25 in March. However, that’s more of an opportunity than a problem for bargain hunters. The share-price drawdown was really just collateral damage. Ally Financial didn’t severely over-invest in government bonds or crypto like Silicon Valley Bank and Signature Bank evidently did.

Moreover, Ally Financial has built up its defenses by increasing its allowance for loan losses from $1 billion in 2014 to $3.7 billion in 2022. In addition, Ally Financial’s business model has become more diversified over the years. From 2014 to 2022, Ally’s reliance on automotive loans decreased as the company’s other business segments (home, lending, credit card and corporate finance) grew 26%.

As the Crisis Passes, Ally Financial Delivers Shareholder Value

While other banks might struggle to survive, Ally Financial has a solid capital position. The company should have no problem respecting its depositors’ withdrawal requests. After all, Ally had consolidated $5.1 billion worth of liquid cash and cash equivalents at the end of 2022’s fourth quarter.

Furthermore, Ally Financial will overcome its challenges by continuing to respect the company’s shareholders. Last year, Ally executed a whopping $1.7 billion worth of share repurchases. Amazingly, the company repurchased around 42 million shares in 2022.

Also, Ally Financial maintained consistent dividend payments last year, even while the economy was shaky. Currently, the company offers a forward annual dividend yield of 4.71%. This is more than twice the sector average of 2.114%. Clearly, Ally Financial has given its shareholders reasons to stay in the trade.

Yes, Ally Financial Can Overcome Its Short-Term Challenges

Ally Financial’s biggest challenge isn’t anything terrible that the company has done. Rather, Ally is dealing with skittish investors amid a regional banking crisis. Plus, the company has to assure its customers and investors that it’s not in the same boat as Silicon Valley Bank and Signature Bank.

In time, the current financial sector crisis will pass. Ally Financial will continue to stand out as a highly reliable and well-capitalized bank. Additionally, Ally demonstrates time and again that the company respects its investors. Therefore, it makes sense to buy ALLY stock now, while the price is cheaper than it really ought to be.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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