Payment stocks look due for a big 2020 for a few reasons.
First, U.S.-China trade tensions — which have already started easing — will continue to ease over the next few months since neither side wants to upset the egg carton ahead of the U.S. presidential election. Sustained easing of these tensions will inject stability back into the global economy, and this newfound stability will provide support for increased consumer spending.
Second, central banks around the globe appear committed to easy monetary policy. Rates globally remain at or near record lows. The U.S. Federal Reserve, the European Central Bank and the Bank of Japan are all injecting stimulus through significant balance sheet expansion. Furthermore, the People’s Bank of China just dramatically expanded bank lending capacity. These continued favorable monetary conditions will also provide support for increased consumer spending in 2020.
Third, global labor market conditions remain strong. Unemployment rates are low almost everywhere, and wages are powering higher. Also, savings account sizes are above historical levels. So long as labor fundamentals remain strong, easy monetary policy and improving global economic sentiment should flow seamlessly into robust consumer spending growth.
Fourth, the secular transition away from cash transactions remains robust. Given the launch of things like 5G, 2020 likely won’t be a year wherein this transition loses any momentum. If anything, it could gain momentum.
Broadly, then, 2020 is shaping up to be a really good year for alternative consumer spending methods. And consequently, a really good year for payment stocks.
With that in mind, let’s take a look at four payment stocks to buy this year that would be great additions to your portfolio.
Payment Stocks to Buy for 2020: Square (SQ)
The simple reality with Square stock is that as goes the company’s adjusted revenue growth rates, so goes SQ stock. When adjusted revenue rates were moving higher every quarter from early 2017 to mid-2018, SQ stock soared from around $10 to $100. Then, when adjusted revenue growth rates started slowing every quarter from mid-2018 to late 2019, SQ stock plunged from $100 to near $60.
In 2020, adjusted revenue growth rates will start moving higher again. That’s because volume growth is already stabilizing, and because the consumer is in a better position to spend in 2020 than than they were in 2018 or 2019. Why? Just look at the intro to this gallery.
It’s also because Square is finally gaining traction among bigger merchants, and bigger contributions from those bigger merchants will boost growth. Finally, it’s because Cash App will gain significant traction in 2020 thanks to the addition of fractional investing.
As adjusted revenue growth rates go higher in 2020, SQ stock will go higher, too. And, not just by a little; By a lot. Mostly because SQ stock is as cheap as it’s been in some time, has been an under-performer for some time and remains well off its 2018 highs. All of this combined? You’ve got a great payment stock to add to your portfolio for the year.
The 2020 bull thesis on payment-cards giant Visa (NYSE:V) is pretty simple.
Consumers will up their spending in 2020 for the same reasons outlined in the intro, including easing trade tensions, accelerating economic activity, supportive monetary policy and favorable labor conditions. At the same time, consumers will increase how much they use their payment cards, because of the uptick in online shopping — you can’t use cash online — and the proliferation of cashless restaurants and merchants.
Higher consumer spending plus higher payment card usage equals even higher payment-card spending.
That’s great news for Visa, who owns about 50% of the global payment cards market. So, in 2020, Visa’s volume and revenue growth trends should materially improve with a rise in global payment card spend.
As this happens, Visa stock — which is richly valued, but not at all-time high valuation levels — will continue to push higher. Mostly because sustained positive business momentum will warrant the premium valuation, especially in a low rate environment. That said, its just another member of the great payment stocks to buy this year.
The dark horse on this list of payment stocks to buy for 2020 is Apple (NASDAQ:AAPL), whose payment initiatives are starting to gain significant traction in the commerce world.
Last quarter was huge for Apple Pay. Revenue and transactions both more than doubled year-over-year, as transactions topped the 3 billion mark — more than many other e-payment processors. Transaction volume is also growing at a rate that is equally to roughly six-fold the growth rate of U.S. e-commerce sales, so Apple Pay is rapidly gaining share on competitors. Furthermore, Apple Card is steadily gaining traction, too.
Now, consider that Apple debuts a super cheap iPhone SE 2 in early 2020 — which should be a huge hit in emerging markets. Also, consider that a 5G iPhone is coming later in the year. Even better, consider that Apple TV+ and Apple Arcade will have their first full year of operations in 2020.
In other words, payment services ramp is just one of many reasons to like AAPL stock in 2020. Sure, valuation is one reason not to like AAPL stock. But, in this environment where Apple’s hardware and software businesses are firing on all cylinders, Apple stock will likely brush aside valuation risks and charge higher.
My bullishness on PYPL stocks stems from four big ideas.
First, as the introduction to this gallery talks about, easing trade tensions coupled with central bank support and favorable labor conditions create a perfect environment for consumers to increase their spending in 2020. As they do, a bulk of that spending uptick will happen online, where PayPal reigns supreme.
Second, PayPal’s late 2019 acquisition of deal-finding and shopping-rewards platform Honey will start to yield meaningful revenue synergies, as PayPal expands Honey’s targeting tools to its network of merchants and as Honey’s rewards are introduced more broadly to PayPal’s user base.
Third, global partnerships — such as the one PayPal just struck with Latin American e-commerce giant MercadoLibre (NASDAQ:MELI) — will power sustained robust international growth. This will help offset any increasing domestic competition headwinds.
Fourth, product innovations at Venmo — such as new merchant-specific emojis and a Rewards program for Venmo Card users — will accelerate PayPal’s leadership role in mobile commerce.
Putting all of those things together, it appears that PayPal is due to have a big 2020. At the same time, the valuation here remains favorable, and that combination ultimately positions PYPL stock to have a strong year.
As of this writing, Luke Lango was long SQ and PYPL.