The Covid-19 pandemic has accelerated the broader adoption of financial technology (fintech) solutions around the world. Combining financial services with information technology, fintech stocks promise to transform the financial industry by providing innovative solutions.
Digital payment and lending players and card networks have directly benefited from the shift to digitalization as well as the growing adoption of e-commerce. In light of this, fintech stocks should continue to see explosive growth in the post-pandemic world. Moreover, unlike the traditional financial industry, their asset-light structures could provide fintech stocks ample room to boost margins.
However, the fintech industry has lagged considerably in 2021. The Global X FinTech ETF (NASDAQ:FINX) has only gained 4% year to date, compared to the S&P 500 index’s return of 25% over the same period.
As fintech stocks surged around 80% in 2020, investors took some profits off the table this year and rotated toward pandemic reopening plays. In this context, the current dip in the fintech space may offer some attractive opportunities.
A report by Research and Markets indicates the global fintech market could reach $31.5 trillion by 2026, implying a compound annual growth rate (CAGR) of close to 27% during the period. Artificial intelligence (AI), digital payments and software firms are all expected to contribute to this growth.
With that said, here are three top fintech stocks that should make great additions to any long-term portfolio in 2022:
Fintech Stocks to Buy: Fiserv (FISV)
52-week range: $94.39 – $127.34
Brookfield, Wisconsin-based Fiserv offers enterprise-level merchant services, payment processing, and financial technologies. The group boasts a customer base of 10,000 financial institutions, around 6 million merchants as well as numerous government agencies. For instance, in the U.S., it is “an approved national vendor for billing and payment services to thousands of National Cooperative Purchasing Alliance (NCPA) members.”
Fiserv reported third-quarter results in late October. GAAP revenue increased 10% year-over-year (YOY) to $4.16 billion. Adjusted net income came in at $987 million, or $1.47 per diluted share, compared to $819 million, or $1.20 per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $942 million.
On the results, CEO Frank Bisignano remarked, “We posted another strong quarter of double-digit adjusted revenue and adjusted EPS growth as we continue to invest in organic and inorganic growth and demonstrate unmatched execution.”
The company has become a leading player in outsourced information technology (IT) solutions for financial institutions. Furthermore, Fiserv’s new offerings, Clover and Carat, are growing at a rapid rate.
FISV stock currently hovers below $100, down 12% YTD. Shares trade at 15.6 times forward earnings and 4.3 times trailing sales. Long-term investors may regard the current dip in the stock price as an opportunity to grab this fintech stock at current levels.
SoFi Technologies (SOFI)
52-week range: $11.80 – $28.26
San Francisco, California-based SoFi offers a broad range of financial services for individuals, including loans, mortgages, credit cards, and brokerage services. The fintech group operates through its mobile app and website. Following its acquisition of Golden Pacific Bancorp, the company is on track to gain a bank charter soon.
Banks are regulated nationwide by the Federal Reserve (FDIC) and the Office of the Comptroller of the Currency (OCC). However, until it gets its bank charter SoFi has to abide by different regulations in each state. Put another way, the bank charter will decrease the workload and enable SoFi to save on loan origination costs, improving margins.
The fintech group reported Q3 results on Nov. 10. Revenue increased 35% YOY to $272 million. SoFi’s lending division generated around $210 million of revenue and contributed a record profit of $117 million. Net loss came in at $30 million, or 5 cents per diluted share, down 30% from $42.9 million in the prior-year quarter. Cash and equivalents ended the period at $854 million.
After the announcement, CEO Anthony Noto remarked, “I believe we’ve accomplished more at SoFi across our uniquely diversified platform of mobile-first financial services products over the past year than many other companies will achieve in a lifetime.”
SoFi increasingly targets a higher-income demographic group. The company is focused on increasing its cross-selling volume, as it means higher customer engagement, decreasing customer acquisition costs. SoFi pulled in 377,000 new customers during the third quarter, on the way to 3 million total members.
SOFI stock hovers at $20 territory, up 64% YTD. However, it has declined 10% in the past several days. Morgan Stanley (NYSE:MS) has recently initiated coverage of SoFi stock with a price target of $25, highlighting its impressive revenue growth. Shares are trading at 19 times trailing sales. Interested readers could regard any further decline as opportunity to buy SOFI stock.
Fintech Stocks: Square (SQ)
52-week range: $191.36 – $289.23
San Francisco, California-based Square offers a leading commerce ecosystem, allowing sellers to accept card payments and enjoy a wide range of related services.
Wall Street regards, Square as one of the most innovative fintech names. For instance, its Cash App has evolved into a highly-regarded personal finance platform that has over 70 million annual transacting active customers.
Square released Q3 results in early November. The company reported revenue of $3.84 billion, up by 27% YOY. Net income came in at $0.1 million, down from $37 million in the prior-year quarter. The company ended the third quarter with $7.4 billion in available liquidity, with $6.9 billion in cash and equivalents.
CEO Jack Dorsey remarked, “In our seller ecosystem, we continue to build upon our omnichannel capability and those efforts have enabled us to attract and retain larger sellers while also helping our existing sellers grow our market.”
Square recently announced that it would acquire Afterpay (OTCMKTS:AFTPY), an Australian “buy now, pay later” (BNPL) company, in a $29 billion, all-stock transaction. Afterpay has about 100,000 merchants worldwide. Through this acquisition, Square offers a consumer credit product to its Cash App users.
Given its rapidly growing addressable market, SQ stock could be an excellent option for long-term investors. SQ stock hovers at $225, up only 3.5% YTD.
However, despite declining almost 11% over the past month, the stock trades at a high valuation at 105 times forward earnings and 7.3 times trailing sales. A potential decline toward $210 would improve the margin of safety.
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 three 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.