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As we’ve been chronicling in the Digest, the coronavirus has been speeding up the division between the “haves” and “have nots” — on personal, business, and investment levels. That’s because the coronavirus is intensifying the impact of a powerful phenomenon our global macro specialist, Eric Fry, has been studying and writing about for months … Over the next decade, we’re going to see the Technochasm divide our society as it drives huge wealth creation for those who align themselves accordingly … and leaves the rest behind. In today’s Digest, let’s turn to Eric’s update from this past week which discusses how the Technochasm is changing the banking/credit sector. Eric highlights a specific company that’s disrupting “business as usual” and stands to gain even more market share looking forward. It’s just another example of “tech” impacting our lives — and our money. Have a good weekend, Jeff Remsburg |
This Company Is Benefiting From America’s Spirit of Independence
By Eric Fry
One of the more surprising effects of the coronavirus crisis is a resurgence in the American spirit of independence.
No, I’m not talking about the reopening protests at state capitols around the country, though that’s part of it.
I’m talking about the desire to free ourselves from control … from the government, from corporations, from global supply chains.
Part of that comes from the surprisingly quick breakdown in that global supply chain. Think back a few weeks ago when we saw shortages or price hikes on fairly basic items like coffee, flowers, and meat.
And as for needed pandemic supplies produced in China — like face masks, certain drugs, and ventilators — forget about it. They were gone.
That’s why we’ve seen rising anti-China sentiment and calls to bring large chunks of manufacturing back to the United States. And it’s why so many people want to do things more locally and more independently if possible.
Now … it will take billions of dollars and years of effort to bring manufacturing back to America. As far as individual independence goes, that also takes large amounts of efforts and money.
However, there is one simple step that millions of us take every day to declare our independence. It’s simple step that has led to a multibillion-dollar megatrend.
One company in particular had already been benefiting from that trend long before the coronavirus hit … and it has thrived even more during the current crisis.
It’s a company whose stock, I believe, could double in just a few years.
Today I’ll tell you about that trend — and that company …
Getting Off the Big Bank Grid
That simple step millions of us take every day is using a mobile payment app instead of a credit card.
And that megatrend is fintech — any type of disruptive finance-focused technology, from mobile payment apps to cryptocurrencies.
Generally speaking, fintech companies enable individuals and companies to get off the financial grid. With fintech, they can conduct transactions without having to use traditional bank-based channels.
Some fintech companies eliminate credit card companies from the online shopping process by enabling consumers to obtain immediate, short-term loans for their purchases.
Other fintech companies conduct peer-to-peer lending. They provide loans to consumers or businesses without relying on banks to fund those loans.
The mobile payments boom is one of the fastest-growing examples of fintech in action. Mobile payment apps like PayPal One Touch have sprung up around the globe like mushrooms after a rain.
And that’s part of the reason why PayPal Holdings Inc. (PYPL) has been a huge winner in 2020.
The company has suffered only a modest negative impact from the coronavirus. While it has had to increase reserves for potential credit losses due to the virus, it’s made up for that and more with a huge surge in payments activity.
As a result, its shares are up an astounding 34% year-to-date. And for anyone who bought at the March lows, PayPal has soared 67% since the bottom.
That said, I believe PayPal’s stock still has further to go. It is one of the best-positioned companies out there for dealing with the current economic environment. With the virus still a lingering threat, who wants to handle physical cash right now? Many transactions have moved online, and PayPal is there to facilitate them.
In the span of a few months, years’ worth of economic activity has moved off the big bank grid and into PayPal’s digital realm. Plus, the company is seeing demand soar even while the credit card companies are witnessing declining volumes.
Overall, PayPal is in the sweet spot, and its shareholders are reaping the benefits …
Beating the Credit Card Companies
PayPal should be a huge beneficiary of post-coronavirus “contactless” retail practices. While contactless retail may seem like a simple phrase, it encompasses a ton of territory.
You have traditional e-commerce, curbside pickup, cashier-less checkout in stores, in-app payments, and more. Many of these options put PayPal on equal footing with the credit card networks. Therefore, plastic’s traditional monopoly on digital payments is breaking down.
We can see this playing out in the company’s most recent operating results. During April, PayPal gained 7.4 million new accounts and grew processed payments 18%. Given the sharp overall drop in economic activity, these are staggering figures. The total commerce pie shrank dramatically during the month, yet PayPal managed to produce strong double-digit growth.
This is in stark contrast to the major credit card companies. Both Visa Inc. (V) and Mastercard Inc. (MA) suffered 20% or greater declines in transaction activity over the same period.
Up until this crisis, Visa and Mastercard were widely viewed as the most powerful and entrenched payments companies out there. However, as PayPal gains market share, its valuation will continue to catch up with the credit card titans.
Simply put, PayPal is an innovative market force that will continue to lead.
The company was already producing fantastic results before the current pandemic started, and what’s going on with the health crisis is an unbelievable shot of adrenaline for the war on cash … and our desire to free ourselves from the big banks and credit card companies.
Yes, PayPal’s stock is rich. It is trading at 46 times forward earnings and nearly 10 times revenues. Both of those are way up there, but it is deserving of its premium price.
The company has grown its earnings at more than 30% a year compounded over the past five years, and analysts see 20% earnings per share (EPS) growth going forward.
Those are great numbers, so don’t let the valuation scare you too much. The company’s fundamentals fully support a bullish outlook right now.
PayPal has huge profit potential over the next few years … but it’s just one stock that I think will thrive post-COVID-19.
In fact, I’ve identified the one company that I believe will deliver the biggest gains.
In my brand-new presentation, I’ll tell you about it. Check it out here.
Regards,
Eric Fry
