The easiest way to find the best fintech stocks to buy is to examine the holdings of fintech ETFs such as the passively managed Global X Fintech ETF (NASDAQ:FINX) or the actively managed ARK Fintech Innovation ETF (NYSEARCA:ARKF), America’s best-known fintech ETF due to portfolio manager Cathie Wood’s notoriety.
FINX is up 6.2% year to date compared to 3.4% for the S&P 500. So far, in 2023, ARKF is up 7.6%, 140 basis points higher than FINX and 420 basis points better than the index. If this is any indication of how the year may go for the sector, 2023 could be the year fintech stocks come alive.
The Global X Fintech ETF provides exposure to 71 fintech stocks, thereby avoiding too much company-specific risk. The ARK Fintech Innovation ETF typically owns between 35 and 55 stocks at any given time. As of Jan. 12, it held 30.
If you don’t want the task of following all of the fintech stocks currently trading on U.S. stock exchanges, both of the ETFs mentioned above are good alternatives. However, for those who want to bet on individual fintech stocks, the funds’ top holdings are a good place to start.
All three of my choices for the best fintech stocks to buy now got hammered in 2022. That makes all three excellent buys if you’re willing to hold for the long term.
Block (NYSE:SQ) is the largest holding of FINX with a 7.4% weighting, as well as the largest holding of ARKF at 11.5%.
Baird analyst David Koning recently upgraded the parent of Square, Cash App and Afterpay to “outperform” from “neutral.” The analyst kept his neutral rating on Block for two years before upgrading its stock on Jan. 3. Koning increased his price target by $16 to $78, which is 11% higher than where it’s currently trading.
Koning believes the company’s hefty cash balance of $4.6 billion, as of Sept. 30, should contribute an additional $160 million (20 cents a share) of pretax income in 2023, assuming a 2% increase in interest rates this year.
Highlights from Block’s third-quarter report included year-over-year increases of 17% in revenue to $4.52 billion, 51% in Cash App gross profits to $774 million and 29% in Square gross profits to $783 million. Adjusted earnings before interest, taxes, depreciation and amortization of $327 million were 40% higher than in Q3 2021.
“After a wild ride over the past 2.5 years, Block’s business is emerging from the pandemic stronger than ever,” Lisa Ellis, senior managing director at MoffettNathanson wrote in a Nov. 4 note to clients, Barron’s reported.
With shares trading at just 2.3 times sales, well below their five-year average of 8, Block is the best of the best fintech stocks to buy.
Intuit (NASDAQ:INTU) is the fourth-largest holding of FINX with a 6.5% weighting, while it is the 19th-largest holding of ARKF at 1.6%. Its stock is up around 2% in 2023.
The company is best known for TurboTax, QuickBooks, Credit Karma and Mailchimp. Intuit paid $7.1 billion in February 2020 for Credit Karma, best known for providing free credit scores. In September 2021, it paid $12 billion in cash and stock for Mailchimp, which has helped accelerate Intuit’s growth with small and mid-sized businesses.
In the company’s most recent quarter, Credit Karma grew revenue by 2% to $425 million. Overall, the company’s revenue jumped 29% to $2.6 billion, with a 13-percentage-point contribution from Mailchimp.
For all of fiscal 2023, Intuit expects revenue and adjusted earnings per share of $14.035 billion to $14.25 billion and $13.59 to $13.89, respectively. While the top-line estimate is down from previous guidance, management is still forecasting 11% revenue growth and 16% earnings growth at the midpoint of their guidance.
It’s hard not to appreciate how much Intuit has grown. In July 2010, Intuit had 29 million customers. At the end of July 2022, it had 103 million.
The only fly in the ointment for Intuit is its Credit Karma business. Management has gone from projecting double-digit growth in revenue in fiscal 2023 to a double-digit contraction.
Of the 28 analysts covering the stock, 23 rate it “overweight” or “buy,” with an average target price of $473. That’s 19% higher than where it’s currently trading.
Toast (NYSE:TOST) is the 19th-largest holding of FINX with a 1.7% weighting, and it is the 11th-largest holding of ARKF at 3.9%. Its stock is up 6.5% in 2023 and 33% over the past six months.
The provider of an end-to-end software-as-a-service platform for the restaurant industry reported Q3 results in mid-November. They were so good that management upped their guidance for the entire year.
On the top line, Toast now expects revenue of at least $2.69 billion, $72 million higher than its previous guidance. While the company expects to post an EBITDA loss of $117 million to $127 million, that is down from a previous range of $140 million to $160 million. Moreover, the company’s losses are trending in the right direction.
Benzinga reported comments from Mizuho analyst Dan Dolev on Jan. 9. In a nutshell, Toast is taking market share from Square in the restaurant arena, which accounts for 30% of Block’s gross payment volume.
Analysts are getting more optimistic about its future. Of the 20 analysts covering TOST, 12 either rate it “overweight” or “buy.” Their average target price of $24.53 is 28% higher than where it’s currently trading.
In mid-November, Needham analyst Mayank Tandon had some very positive comments to clients about Toast, according to Barron’s. “We believe TOST provides critical solutions to restaurants that can help manage costs and drive incremental sales which we believe becomes vital during times of economic strain,” Tandon wrote in a note to clients.
TOST has the greatest risk of today’s three best fintech stocks but could also have the greatest reward. So keep that in mind when allocating capital.
On the date of publication, Will Ashworth 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.