Some U.S. bank stocks have reported surprising profits lately, and some have even begun to repay loans received under the U.S. government’s Troubled Asset Relief Program. However, the sector itself remains volatile.

While we recommend some high-quality U.S. bank stocks in our Wall Street Stock Forecaster newsletter, we feel that you can cut your risk by not just investing in top bank stocks, but by investing in other types of financial companies, as well.

In our most recent issue of Wall Street Stock Forecaster, we update our advice on U.S. tax-preparer H&R Block (New York symbol HRB).

H&R Block’s tax business gives it a strong foundation

H&R Block (New York symbol HRB) is the world’s largest provider of income-tax-preparation services. It operates 12,923 offices in the U.S. (34% owned by franchisees), as well as 1,193 in Canada and 378 in Australia. It gets 74% of its revenue from tax services.

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Through a subsidiary, H&R Block provides tax consulting and accounting services. It also offers banking services, including chequing and savings accounts, loans and credit cards issued to its tax-preparation clients. But what separates H&R Block from bank stocks is that these activities only account for a small percentage of its revenue.

Recession, greater regulation could dampen profits

The recession and rising unemployment have weighed on the company’s tax-return business. As well, the tax-preparation business, like other areas of the finance sector (including bank stocks), is becoming increasingly regulated in the wake of the credit crisis. Right now, tax professionals do not have to be licensed, except in certain circumstances. However, the Internal Revenue Service may soon require all tax preparers to undergo training. This would almost certainly drive up H&R Block’s costs.

However, the company has a couple of factors working in its favour. One is the increasing complexity of the U.S. tax code, which is driving up the fee that H&R Block charges on each return it prepares. The company is also getting strong returns from its tax-preparation software, which recently saw a big jump in the number of returns prepared.

We’ve updated our buy/hold/sell advice on H&R Block in the latest issue of Wall Street Stock Forecaster. What’s more, when you subscribe today, you can try Wall Street Stock Forecaster for one month absolutely free. You have no risk and no obligation. Click here to learn more.