The easiest way to find the best fintech stocks to invest in is to examine the holdings of a fintech ETF such as the Global X Fintech ETF (NASDAQ:FINX).
In fact, most retail investors interested in gaining exposure to fintech stocks should seriously consider buying shares of FINX and calling it a day. FINX exposes you to 65 fintech stocks, avoiding too much company-specific risk from investing in one or two companies.
However, for those who want to bet on individual fintech stocks, FINX’s top 10 holdings are an excellent place to start. I really like at least one name in the top ten. I’ve included it in my list of the three best fintech stocks to own. The other two names I’ve selected are in the top 20.
All three of my choices have gotten hammered in 2022. That makes them excellent buys if you’re willing to hold them for the long term. That’s because you’re getting them for 20% off or more. Only Black Friday gives you that kind of deal.
Block (NYSE:SQ) has lost almost 60% of its value in 2022 and is down 77% from its all-time high of $289.23, made in August 2021.
As CEO Jack Dorsey said at the company’s 2022 Investor Day in May, Block is busy building an “ecosystem of ecosystems.” It started in 2009 with a credit card
reader called Square, which it grew into a payments ecosystem for small businesses. It added Cash App, a peer-to-peer payment service, in 2013. In 2019, it began to think about ways to connect these two ecosystems.
As a result, it acquired buy now, pay later company Afterpay for $29 billion in February 2022. The “buy now, pay later” service provides Square sellers with an additional selling feature, while users of Cash App are given a way to manage their spending and cash flow over more extended periods.
Block reported better-than-expected third-quarter results on Nov. 3. Highlights from the quarter included a 17% increase in revenue to $4.52 billion, a 51% increase in Cash App’s gross profits, a 29% increase in Square’s gross profits, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $327 million, 40.3% higher than in Q3 of 2021.
Of the 47 analysts covering Block, 33 rate it “overweight” or “buy,” and their average target price on the name is $88.13, versus its current price of $69.70.
Deutsche Bank analyst Bryan Keane likes Block despite the challenging economic landscape we’re experiencing heading into 2023.
“Even as market volatility and concerns surrounding macro headwinds have weighed on SQ’s shares, we remain positive on the company’s fundamental trajectory heading into FY23,” Tipranks reported the analyst recently said. “In particular, we believe SQ will continue pulling levers to drive margin expansion as the company increases focus on reining in opex while still investing for long-term growth.”
Square is currently valued at 2.08 times its sales, well below its five-year average of 8.04 times.
Block remains my best bet in fintech.
On the top line, Toast expects 2022 revenue of at least $2.69 billion, $72 million higher than its previous guidance. On the bottom line, it expects an EBITDA loss, excluding certain items, of $127 million on the high side of its range, versus a $160 million adjusted EBITDA loss previously.
Most analysts are optimistic about Toast’s future.
Of the 20 analysts covering TOST, 12 rate it “overweight” or “buy,” and analysts’ median target price on TOST is $25.22, versus its current price of $19.77
“We continue to be impressed with the strong sales execution in the midst of an uncertain macro backdrop as management continues to chip away at the massive market opportunity,” Barron’s reported Needham analyst Mayank Tandon’s as telling the bank’s clients in mid-November. “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.”
At least according to Needham’s position, Toast won’t be toast if the economy worsens.
In October, Mizuho Securities analyst Dan Dolev said in a note to clients that he thought Toast could be profitable on an adjusted EBITDA basis in 2023.
Toast could be one of the best buys in fintech stocks as its shares can climb meaningfully.
Credit Karma announced on Nov. 1 that it was freezing hiring to ensure it’s not overstaffed heading into a possible recession. In its fiscal Q1, Credit Karma’s revenue rose 2% year-over-year to $425 million. Overall, the unit’s revenues jumped 29% YOY in Q1, with a 13 percentage point contribution from its $12 billion acquisition of Mailchimp in 2021.
On Dec. 1, Intuit acquired financial health startup SeedFi. Intuit partnered with SeedFi in late 2021 to offer Credit Karma’s Credit Builder service, which helps people with little or no credit improve their credit scores while saving money. SeedFi will be managed by Credit Karma. No terms of the deal were disclosed.
Like most fintech stocks, INTU is down in 2022. Specifically, the financial software company’s stock is off nearly 34% in 2022.
Intuit’s guidance, at the midpoint of its guidance range, calls for its earnings per share, excluding certain items, to decline 8% to $1.43. During the same period a year earlier, it generated EPS, excluding certain items, of $1.55.
Credit Karma now expects its sales to drop 10%-15% during the current quarter, versus its previous outlook of a 10%-15% gain. But Intuit still expects its overall sales to grow 8.5% YOY this quarter.
It’s hard not to appreciate how much Intuit has grown over the past 12 years. In July 2010, Intuit had 29 million customers. At the end of July 2022, it had 103 million customers.
The company estimates that its global total addressable market is $312 billion. It has only managed to grab a little of that potential revenue, so its opportunity remains significant.
Of the 28 analysts covering its stock, 23 rate it “overweight” or “buy,” and their average price target on INTU is $476.26, versus its current price of $425.50.
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.