Financial technology (fintech) continues to grow in prominence every day, benefiting from the shift to digital payments and increasing adoption of e-commerce. The fintech market is expected to triple in size over the next decade, creating significant opportunities for publicly traded companies and investors. Therefore, today we’ll discuss some of the best fintech stocks to buy in July and hold for the long run.
Fintech stocks represent an enormous market. “Financial markets in the United States are the largest and most liquid in the world. In 2018, finance and insurance represented 7.4 percent (or $1.5 trillion) of U.S. gross domestic product.” In this high-growth sector, fintech is gaining traction as “the US fintech market’s transactional value’s CAGR is 8.6% over the forecast period of 2019-2024.”
From peer-to-peer payments to trading stocks or buying insurance online, consumers can now complete all sorts of financial transactions with ease online. Cutting-edge technologies provide faster and more reliable solutions for both institutions and ordinary users.
As there are plenty of names in the fintech industry, it may be challenging for investors to select the best investment opportunities. With that in mind, here are seven fintech stocks that should be on your investment radar this summer:
- ARK Fintech Innovation ETF (NYSEARCA:ARKF)
- Capital Link NextGen Protocol ETF (NYSEARCA:KOIN)
- First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR)
- JPMorgan Chase (NYSE:JPM)
- Mastercard (NYSE:MA)
- Paypal (NASDAQ:PYPL)
- Square (NYSE:SQ)
Fintech Stocks: ARK Fintech Innovation ETF (ARKF)
Current Price (July 21 Open): $51.64
52-Week Range: $33.37 – 64.49
Dividend Yield: 0.34%
Expense Ratio: 0.75% per year
Our first choice is an exchange-traded fund (ETF). The ARK Fintech Innovation ETF is an actively managed fund run by Cathie Wood’s Ark Invest. It invests in businesses that focus on the fintech sector.
ARKF, which typically invests in 35-55 companies, currently has 43 holdings. The fund began trading in February 2019. The leading ten names account for more than 47% of net assets of $4 billion.
Information technology (IT) has the highest sectoral allocation with 38.2%, followed by communication services (22.8%), consumer discretionary (16.3%) and financials (15.6%).
Among the top names in the ARKF are Square and PayPal (discussed in detail below), online real estate platform Zillow (NASDAQ:ZG, NASDAQ:Z), Latin American e-commerce group MercadoLibre (NASDAQ:MELI) and U.S. cryptocurrency exchange Coinbase (NASDAQ:COIN).
Year-to-date, ARKF is up about 5%. However, in the past 12 months, it has returned close to 50%. The fund hit an all-time-high in mid-February. Since then, many of the shares in the ETF have come under pressure. Therefore, interested buy-and-hold investors could consider investing around these levels.
Capital Link NextGen Protocol ETF (KOIN)
Current Price: $42.92
52-Week Range: $30.63 – $43.71
Dividend Yield: 0.36%
Expense Ratio: 0.95% per year
The Capital Link NextGen Protocol ETF aims to capture the performance of companies that use or are involved in developments in fintech. KOIN, which has 45 holdings, tracks the returns of the ATFI Global NextGen Fintech Index.
The fund started trading in January 2018 and has around $30 million in assets. In other words, it is still a young and small fund. In terms of the sub-sectoral breakdown, the Information Technology (IT) sector makes up the highest portion.
The fund’s top 10 holding account for 40% of all holdings. Online e-commerce and cloud technology giant Amazon (NASDAQ:AMZN), chip heavyweight Nvidia (NASDAQ:NVDA), largest payment processor Visa (NYSE:V), electronic payment solutions provider Paypal and tech darling Microsoft (NASDAQ:MSFT) lead the names in the roster.
Over the past year, the fund is up about 35% and hit a record high on July 14. As investors dig further into innovations in fintech, they see both the complexity and the potential offered by the developments. The integration of blockchain technologies is making fintech a hot segment of financial services. Therefore, a fund like KOIN could be an appropriate tool for investing in this space.
Fintech Stocks: First Trust Indxx Innovative Transaction & Process ETF (LEGR)
Current Price: $41.57
52-Week Range: $30.06 – $43.14
Dividend Yield: 1.18%
Expense Ratio: 0.65% per year
The First Trust Indxx Innovative Transaction & Process ETF provides exposure to companies that are either actively using, investing in, developing or have products that could benefit from blockchain technology.
LEGR, which has 100 holdings, tracks the returns of the Indxx Blockchain Index. The fund started trading in January 2018 and has around $113 million in assets.
In terms of the sub-sectoral breakdown, the financial sector makes up the highest portion with 37.59%, followed by the information technology and communication services sectors with 34.76% and 8.17%, respectively. The fund’s top 10 holding account for 16.64% of all holdings in the fund.
Chip heavyweight Texas Instruments (NASDAQ:TXN), tech giant International Business Machines (NYSE:IBM), telecommunications groups Deutsche Telekom (OTCMKTS:DTEGY) and Swisscom (OTCMKTS:SCMWY), and enterprise software provider Oracle (NYSE:ORCL) lead the names in the fund.
Over the past year, the fund is up 34%. The recent weakness in some tech names could mean a better opportunity to buy into LEGR.
JPMorgan Chase (JPM)
Current Price: $152.05
52-Week Range: $91.38- $167.44
Dividend Yield: 2.4%
Our first non-ETF stock, JPMorgan Chase, is one of the leading banking and asset management firms worldwide. Its business segments that contribute to revenue and profits include Consumer & Community Banking, Corporate & Investment Bank (CIB), Commercial Banking and Asset Management. In other words, this well-managed, diversified bank operates in all major banking areas.
In addition, management is taking steps to become a leading fintech name. For instance, within CIB, its Digital Innovation Team is helping shape the bank’s digital agenda. Its Blockchain Center of Excellence focuses on “blockchain use cases to develop in-house technology and pilot solutions across lines of business” within the bank.
JPMorgan Chase issued Q2 figures in mid-July. Revenue was $31.4 billion, a 7% decrease YoY. Net income was $11.9 billion. A year ago, it had been $4.7 billion. Diluted EPS came at $3.78 compared to $1.38 in Q2 2020.
CEO Jamie Dimon stated, “JPMorgan Chase delivered solid performance across our businesses… Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve. In particular, net charge-offs, down 53%, were better than expected, reflecting the increasingly healthy condition of our customers and clients.”
So far in 2021, JPM stock is up a bit over 20%. Forward price-to-earnings (P/E), price-to-sales (P/S) and price-to-book (P/B) ratios are 10.77, 3.67 and 1.75, respectively. The bank is a large-cap, high-quality dividend name that is also at the forefront of innovation. Thus JPMorgan Chase is likely to create significant shareholder value well into the future. A potential decline toward the $145 level would improve the margin of safety for long-term investors.
Fintech Stocks: Mastercard (MA)
Current Price: $376.03
52-Week Range: $281.20 – $401.50
Dividend Yield: 0.48%
Our next fintech stock is Mastercard, one of the largest payment processors in the world. The company helps consumers and institutions with most of their transaction-related needs. Its well-known brands include Mastercard, Maestro and Cirrus.
Mastercard released first-quarter financial results in late April. Net revenue came in at $4.2 billion, up 4% from the prior-year period. Adjusted net income declined by 6% to $1.7 billion, or $1.74 per share. Cash and equivalents ended the quarter at $7.2 billion.
CEO Michael Miebach said, “We’ve made strong progress in delivering on our multi-rail strategy, as we integrate the Finicity and Nets corporate services teams. And, we continue to invest for the long-term, adding to our trust and digital identity capabilities with the planned acquisition of Ekata.”
The group is focusing on blockchain technology to offer new types of services to clients. It is already utilizing the technology to increase the efficiency of international transactions in near real-time. It is a top 10 holder of blockchain patents with 89 patents and around 285 applications pending.
In 2020, Mastercard acquired Finicity, a fintech company that offers users the capability to connect their bank accounts to other payment apps. The acquisition has provided Mastercard with a solid footprint in the emerging open banking segment.
MA stock is up around 6% so far this year. It has increased by 21% in the past 12 months. MA stock’s forward P/E, P/S and P/B ratios stand at 48.78, 25.14 and 60.64, respectively.
Current Price: $298.07
52-week range: $169.08 – $309.14
Dividend Yield: N/A
San Jose, California-based PayPal has become one of the leading names in fintech. Its payment solutions include PayPal, Venmo, Xoom, PayPal Credit, and Braintree. While the company accounts for 22% of online transactions in the U.S., it has also emerged as a prominent player in the European fintech industry.
PayPal released record first-quarter results in early May. Total Payment Volume soared 50% YOY to $285 billion. Net revenue increased 31% to $6.03 billion. Non-GAAP operating income of $1.67 billion and non-GAAP EPS of $1.22 imply a 84% YOY increase. Free cash flow reached $1.54 billion, up 27% YOY.
“Our strong first quarter results demonstrate sustained momentum in our business as the world shifts into the digital economy,” remarked CEO Dan Schulman. “Our addressable market continues to grow as we launch new products and services for our 392 million active accounts.”
In particular, PayPal’s person-to-person payment platform Venmo has become an industry leader, growing its vast user base at a rapid pace. In addition, Venmo has made PayPal a significant player in the lucrative cryptocurrency trading market, allowing it to compete with Coinbase.
PayPal continues to acquire complementary businesses. Recent acquisitions include the e-commerce tool Honey and Zettle, a digital point-of-sale solution that allows small businesses to accept a wide range of payments in-person with the Zettle card reader.
PYPL stock is up 67% in the past 12 months. It hit an all-time high of $309.14 in mid-February. The stock is currently trading slightly above $290, up 28% YTD. Paypal currently boasts a market cap of $351 billion.
PYPL stock’s forward P/E, P/S, and P/B ratios stand at 64.52, 15.31, and 17.80, respectively. As these numbers imply an overstretched valuation, buy-and-hold investors should consider any dips in the stock price as an opportunity to invest for the long term.
Fintech Stocks: Square (SQ)
Current Price: $246.28
52-Week Range: $117 – $283.19
Dividend Yield: N/A
The last of our fintech stocks is Square, a commerce ecosystem that enables sellers to start, run and grow their businesses. The platform combines software with hardware to allow sellers to turn mobile devices and computing devices into payments and point-of-sale solutions.
The company released Q1 2021 results in early May. Total revenue was $5.06 billion, up 266% YOY. Net income was $39 million, compared to a net loss of $106 million in the prior-year quarter. Adjusted EPS stood at 41 cents, representing a 43 cent YOY improvement. The company ended the quarter with $4.3 billion in cash and equivalents.
CEO Jack Dorsey remarked, “We delivered strong growth at scale during the first quarter of 2021. Gross profit grew 79% year over year to $964 million … Our Cash App ecosystem delivered gross profit growth of 171% year over year.”
Square’s products have evolved to become a large-scale financial ecosystem for individuals and small businesses. The company processes card payments at an annualized rate of over $100 billion.
Peer-to-peer payments platform Square Cash App continues to push into banking and investing-related services. Square’s Cash App generated $495 million from over 36 million users and more than doubled its profits in the first quarter. Cash App has also transformed into a crypto exchange, as it now allows users to buy and sell Bitcoin (CCC:BTC-USD). Cash App revenue generated from Bitcoin sales skyrocketed almost elevenfold in the first quarter.
SQ stock is up about 17% YTD. The stock has returned around 92% in the past 12 months. Already a well-established player in the digital payments space, Square should continue to be a leading fintech player for years to come. SQ shares currently trade at 169 times forward earnings and 9 times sales.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.