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Ron Baron Sees Financial Stocks as 'Extraordinarily Cheap'

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  Published in Stocks and Investing on Friday, February 20th 2026 at 7:52 GMT by CNBC
      Locales: UNITED STATES, JAPAN

Friday, February 20th, 2026 - Veteran investor Ron Baron, founder and CEO of Baron Funds, is making waves with his bullish assessment of the financial sector. In a recent interview with CNBC, Baron declared financial stocks to be "extraordinarily cheap," presenting a compelling argument for why investors should consider allocating capital to this often-overlooked segment of the market.

Baron, who oversees a portfolio exceeding $50 billion, attributes the current undervaluation to prevailing anxieties surrounding interest rate hikes and the potential for economic deceleration. This confluence of concerns, he believes, has created a temporary disconnect between market perception and the intrinsic value of many financial institutions. While the broader market has enjoyed a substantial rally - the S&P 500 notably gained 24% in the preceding year (as of December 16th, 2025, based on data from S&P Dow Jones Indices) - financial stocks have lagged, rising by approximately 12%. This divergence is what Baron sees as a key opportunity.

Why the Discount? Understanding the Headwinds

The recent performance of the financial sector hasn't been without its challenges. Rising interest rates, while potentially beneficial for net interest margins, have also sparked fears of increased defaults and a cooling housing market. Inflation, persistent in recent years, erodes purchasing power and can dampen economic activity, impacting the profitability of financial services. Furthermore, heightened regulatory scrutiny and the ever-present threat of cybersecurity breaches contribute to investor caution.

However, Baron argues that these concerns are largely priced into current valuations. He believes the market is overreacting, failing to recognize the long-term growth potential within certain financial companies. His rationale isn't a bet against the possibility of a slowdown, but rather a conviction that well-managed firms will not only survive a challenging environment but thrive when conditions improve.

Nuveen and BlackRock: Baron's Specific Picks

Baron specifically highlighted Nuveen and BlackRock as companies particularly well-positioned for future success. Nuveen, currently the second-largest manager of U.S. municipal bonds, benefits from the stability and demand associated with tax-exempt investments. Municipal bonds provide a consistent income stream and are often favored by investors seeking a safe haven during times of economic uncertainty. As of the end of 2025, Nuveen shares had experienced a roughly 15% decline year-to-date, potentially creating an attractive entry point for long-term investors. The growing demand for sustainable investing also aligns with Nuveen's increasing focus on ESG (Environmental, Social, and Governance) strategies, a trend that is expected to accelerate in the coming years.

BlackRock, the world's largest asset manager, is a diversified behemoth with a global reach. Its size and scale provide significant advantages in terms of cost efficiency and access to investment opportunities. BlackRock's iShares exchange-traded funds (ETFs) have revolutionized the investment landscape, offering investors low-cost access to a wide range of asset classes. While BlackRock's shares also saw a decrease of around 4% in 2025, Baron believes the company's dominant position and innovation will drive future growth. The increasing adoption of passive investment strategies, coupled with the growing demand for retirement solutions, further reinforces BlackRock's long-term prospects.

Baron's Investing Philosophy: A Long-Term Perspective

Baron's outlook is consistent with his established investment philosophy. With over 50 years of experience in money management, he's earned a reputation for identifying undervalued companies with strong growth potential. He's known for a patient, long-term approach, emphasizing the importance of holding onto quality investments for extended periods to allow them to compound returns. He actively seeks out businesses that are overlooked or misunderstood by the market, often focusing on sectors with secular growth trends.

Implications for Investors

Baron's assessment provides a valuable perspective for investors navigating a complex market environment. While the potential for economic headwinds remains, his view suggests that the financial sector may offer an attractive risk-reward profile. Investors considering exposure to financial stocks should conduct thorough due diligence, evaluating a company's fundamentals, competitive position, and management team.

However, Baron's comments aren't a blanket endorsement of all financial stocks. Selective investment, focusing on companies with strong balance sheets, resilient business models, and a proven track record of innovation, is crucial. The current environment demands a discerning approach, separating the truly undervalued opportunities from those facing genuine long-term challenges. The key takeaway is that fear and uncertainty can sometimes create opportunities for astute investors.