For years before the pandemic struck, digital transactions grew briskly. Giant financial institutions were too busy raising bank fees and offering subpar services. As e-commerce firms took market share from brick and mortar retailers, the need for digital payment systems grew. Fintech stocks are today’s darlings.
When the pandemic caused a sudden shutdown for physically located businesses, companies scurried to build an online presence. Nascent fintech companies that had a modest customer base found themselves getting an explosion in registrations.
Now that the seriousness of the pandemic is past its peak, countries that have most of their population vaccinated will not impose a shutdown again. This may slow e-commerce transactions but will not hurt the strong prospects ahead for fintech stocks. Seven of the best fintech stocks to buy are, in alphabetical order:
- Coinbase Global (NASDAQ:COIN)
- LendingClub (NYSE:LC)
- Mastercard (NYSE:MA)
- PayPal Holdings (NASDAQ:PYPL)
- SoFi Technologies (NASDAQ:SOFI)
- Square (NYSE:SQ)
- Visa (NYSE:V)
In the table above, none of the fintech stocks have a good valuation rating. Markets are paying a premium for fintech stocks because of the growth and quality offered. Paypal and Mastercard both have a long history of strong performance.
Conversely, LendingClub’s break-out from $16 to over $28 days after its quarterly earnings report hurt its value score.
Best Fintech Stocks to Buy: Coinbase Global (COIN)
Coinbase is a secure platform that enables buying, selling, and storing cryptocurrency. It is not the fintech stock that offers daily digital transactions. Eventually, consumers will use cryptocurrency for regular transactions. When that happens, Coinbase’s platform will rise in value.
After its initial public offering in April, Coinbase topped $429.54, only to bottom in the $208 range by early summer. COIN stock is getting the market’s attention again after the company said it would accept commerce payments in Dogecoin. The site already supports major digital currencies including Bitcoin Cash ( CCC:BCH-USD), Ethereum (CCC:ETH-USD), Bitcoin (CCC:BTC-USD) and Litecoin (CCC:LTC-USD). As it positions itself at the center of disruption in the modes of payment, Coinbase has a good chance of re-taking the year’s highs.
In the second quarter, Coinbase posted net revenue of over $2 billion. Monthly transacting users soared from 1.5 million last year to 8.8 million. Its verified users rose to 68 million. In Q1, Coinbase warned that the rapid expansion of the crypto economy also added to challenges including higher competition. Yet in Q2, none of those risks hurt its business. So long as it acts quickly to respond to competitor offerings, Coinbase will keep growing.
Though loan originations are its core business, investors are starting to treat LendingClub as a fintech. In the second quarter, Chief Executive Officer Scott Sanborn said that this is the first full quarter operating a digital bank. He said that this is the start of dramatically enhancing the company’s earnings trajectory.
LC stock benefits from many competitive advantages. This includes having over 3.5 million members, deep data capabilities and an efficient operating platform. In the second quarter, LendingClub more than tripled its revenue to $204.38 million. It earned 9 cents a share.
On the conference call, the company said the loans yield rose from 13.85% last year to 15% in the quarter. Plus, it added over $500 million to its loans portfolio. In the third quarter, the company forecasted loan origination in the range of $2.8 billion to $3 billion. For the full year of 2021, loan originations will be in the range of $9.8 billion to $10.2 billion. It will post a GAAP net loss of between $3 million and $13 million.
Best Fintech Stocks to Buy: Mastercard (MA)
Known for its digital checkout offering, Mastercard is showing exceptionally strong growth. In the second quarter, net revenue grew by 36% to $4.528 billion. It earned $1.95 a share, up by 43% from last year.
MA stock is due to break out again despite Stock Rover’s valuation score of 22/100 (as shown in the introduction). Gross dollar volume (GDV) continues to rise. In Q2, worldwide GDV grew by 33% year-over-year.
Looking ahead, the company expects that acquisitions will add 2%-3% in revenue growth in the third and fourth quarters. Expenses will grow by between 9 and 10 points in that period. Investors will not mind the higher costs. Mastercard is investing now to enhance long-term growth.
PayPal Holdings (PYPL)
Ever since it grew its user base by previously supporting eBay (NASDAQ:EBAY) exclusively, PayPal finally posted a soft outlook that created an attractive entry point for PYPL stock.
In the second quarter, PayPal posted GAAP EPS of $1.00. Revenue grew by 17% to $6.24 billion. Its total active accounts surpassing 400 million is a milestone. Furthermore, a total payment volume (TPV) of $311 billion, up 40% Y/Y, is an impressive achievement. For the full year of 2021, PayPal raised its TPV growth forecast from 33% to 35%. Net revenue will grow by 20%. But GAAP EPS will be $3.49 compared to $3.54 last year.
For Q3, PayPal forecasted revenue in the range of $6.15 billion to $6.25 billion. Earnings guidance of $1.07 a share is below the analyst estimates of $1.08. When the technology sector trades at a premium, markets will punish stocks offering a soft outlook. Still, the upcoming holiday shopping season is approaching. PayPal will likely beat expectations and raise its outlook later this year.
Best Fintech Stocks to Buy: SoFi Technologies (SOFI)
After slumping from the $24 peak following its Special Purpose Acquisition Company merger transaction with Chamath’s Social Capital closing, SoFi is an incredible bargain.
SoFi’s mission is to help people reach financial independence.
In the first quarter, the user base grew by 110% to 2.28 million members. Expect strong user growth on bold initiatives like this one. On May 20, SoFi started offering members the ability to get their hard-earned direct-deposit paychecks up to two days earlier than the regularly scheduled payday. SoFi wants its customers to get their money sooner so they may invest, pay bills, or save sooner.
CEO Anthony Noto said, “we are giving people access to their hard-earned money in a way – and at a time – that allows them to maximize their financial choices. Some might not think that two days matters, but I can tell you firsthand – it MATTERS.”
SoFi’s forward-thinking offerings will lead to a continued exodus of customers from traditional banks to its platform. Its recent no-fee overdraft coverage should also attract growth in customer registrations.
Already a dominant fintech player, Square increased its size by announcing plans to acquire Afterpay (OTCMKTS:AFTPY) on Aug. 1. Square will pay $29 billion for the Australian firm in an all-stock deal. Afterpay investors get 0.375 shares of Square stock for each Afterpay share. This transaction will close in Q1/2022.
Afterpay will add a buy now, pay later capability to Square’s payments platform. Square’s CEO, Jack Dorsey, said “We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles.”
Afterpay has 16 million users. It added 3 million users in the last quarter alone. In its last quarter, Square posted revenue growing by 143% to $4.68 billion. Gross payment volume (GPV) rose to $42.8 billion, up from $22.8 billion last year.
When people start visiting small businesses to eat and shop in the post-pandemic world, Square’s digital transaction volumes will rise sharply. SQ stock is an excellent reopening play.
Best Fintech Stocks to Buy: Visa (V)
Strong revenue growth from Visa reaffirms its dominance in the fintech space. The company posted revenue growing by 27% Y/Y to $6.13 billion. Payment volume grew by 34%.
Visa benefited from easier comparables after last year’s Covid-19 harmed 2020 levels. Still, when indexed to 2019, payment volumes, cross-border volume and processed transactions all grew. Visa’s strong cash generation enabled management to return $2.9 billion of capital to shareholders, through a stock buyback and dividends.
To grow its digital presence, Visa plans to launch a new innovative digital credit small business solution in Italy. Furthermore, it will integrate its digital processing solution with banking players. This will create a unique card program and payment solution, widening its already strong moat.
On Wall Street, every analyst rates V stock a buy except one, who gives it a hold. The average price target is $282, according to Tipranks. Visa is also a strong post-Covid reopening play. Expect digital transactions growth to exceed analyst expectations in the next quarter.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.