3 Financial Tech Stocks to Buy While They’re Out of Favor
InvestorPlace - Stock Market News, Stock Advice & Trading Tips Even though markets are breaking records, there are pockets of relative weakness. T...
While the pandemic was a human tragedy, it spurred extreme interest in a few investment themes. Financial technology is one of those investors flocked to in droves. After the initial shock of a shutdown wore off, financial tech stocks took their place as ones to buy on the dip.
The rallies for the sector ranged from 100% to 800% off the Covid-19 lows. After all, during the shutdown, the whole world went digital — and financial transactions followed suit. We had no alternative.
Consequently, revenue streams exploded higher. Since they were already up and running, they didn’t require much extra work to accommodate the volume. The extra business translated into increasing the bottom line. Some even ventured into new areas, including crypto opportunities.
For example, Paypal (NASDAQ:PYPL) more than doubled its top and bottom lines in four years. It even recently expressed interest in getting into the trading arena. It already offers crypto trading, so it’s a natural transition.
The group is growing and it’s becoming broader in nature. For example we have new contestants like Affirm (NASDAQ:AFRM) and Sofi (NASDAQ:SOFI). But the whole process of digitizing finance is so new that there is room for all to prosper.
The digital revolution in finance is not a fad. This trend is strong and sustainable. First, we pay with credit cards, then phone and watches. And in the future there will be more cool tech to make the process even more personal and convenient.
Crypto also plays a role in propelling this concept forward. In the pursuit of e-coin prosperity, transactions are becoming faster, cheaper and more ubiquitous.
With all that in mind, today’s three financial tech stocks to buy are:
Fintech Stocks to Buy: Visa (V)
Not too long ago, if you paid using an electronic method, there were one-in-three odds was that you used Visa. But in the last decade, the global financial transaction conditions changed drastically.
The first thing is that Amazon (NASDAQ:AMZN) launched a full-scale assault on traditional retail. This helped propel the concept forward.
The pandemic then infused a heavy dose of adrenaline, as online sales grew 43%. These are purely electronic transactions that are catapulting the digitization trend forward.
Even though there are now many more competitors, Visa still has a good chunk of the market. V stock is relatively lagging, but that’s the good news. It has already shed a lot of the froth it gained out of the pandemic rebound. Near $228 per share, Visa makes for a good long-term investment thesis.
Since the bears are in control recently, it does carry short-term technical risk. If V stock falls below $220, it could lose another 10% from there. Investors should take that into consideration and not go all in at once.
Spoiler alert: this is my favorite of the three financial tech stocks to buy today. It is a close battle with Visa, But MA stock is at its pandemic accident scene. Visa has to still fall about 8% to get there. They have similar financials and they are solid.
MA’s management team grew its revenues 33% in four years and almost doubled its net income. Also like Visa it generates a ton of cash from operations. This gives it freedom to pursue other ventures to keep up with the new kids on the block. Technology is accelerating rapidly. A financially stable management team would be free to adapt to them.
Technically, like Visa there are near-term concerns if stocks hiccup. I am harping on that aspect because we are going into a taper event. Wall Street has already had a temper tantrum eight years ago. It could deliver a repeat performance and cause pain across all stocks.
If MA loses $339 per share it could fall another 10% before finding footing. It has support about $10 below the current price but the risk is real. Losing recent support would draw a bearish pattern. After all, machines are largely in charge of the price action and they love chasing patterns.
Fintech Stocks to Buy: Square (SQ)
SQ stock is the strongest of this bunch. Therefore, it is my least favorite of the three stocks to buy today. Square needs to fall a bit more, so it shakes out more weak hands. Unlike Visa and MasterCard, SQ is still 50% above the 2020 February pre-pandemic level. That is a lot of downside potential should the markets hiccup. It is easy to forget that sometimes the best stocks fall through no fault of their own.
Square fell 4% yesterday, so from that perspective it’s a short-term opportunity for a quick trade. But the point today is to find longer-term upside potential, and the first two fit that bill better. I am not taking away from what the company has accomplished in a short time. Square is now setting trends and the rest are trying to keep up. Paypal is giving it a run for its money with innovation though, and both are growing fast.
SQ grew revenues almost eight times since 2017. Even still, the owners of the stock are pretty realistic with their expectations. Price-to-sales is still under 9, which is as cheap as Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). This is not a case where the stock price has gone too far on its own.
Owning the shares for the long term is still a viable thesis, even if it’s not my favorite today.
The bottom line for the whole lot today is that betting against them long term is a loser idea. I’ve been consistent with this message for years. There will be bearish stints but they will rise with the stock markets.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
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