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Fintech Stocks To Buy And Watch As Neobanks

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eastunder Member Level  Monday, 11/29/21 03:38:27 PM
Re: eastunder post# 12635
Post # of 12843 
Fintech Stocks To Buy And Watch As Neobanks Ready IPOs While Stripe Delays

REINHARDT KRAUSE08:08 AM ET 11/29/2021


There's a broad selection of financial technology, or fintech, companies to watch and buy. Fintech stocks have been in the spotlight this year as more companies go public via traditional initial public offerings or through merging with a special purpose acquisition company, or SPAC.

Unfortunately, well-funded fintech Stripe has again said it's in no rush to go public. However, neobanks such as Nubank and Chime are gearing up for IPOs.

Digital technology, cryptocurrencies and financial software are remaking e-commerce, payment networks, online lending, personal finance, banking and more. Innovation from fintech companies also comes in other forms, such as buy now, pay later consumer financing.

Many fintech companies have struggled, such as PayPal Holdings $PYPL PYPL stock has dropped 18% since the e-commerce firm reported third quarter earnings. PayPal stock had earlier retreated on reports it could buy Pinterest $PINS

Fintech Stocks: PayPal Drops Off IBD Leaderboard

PYPL stock, which has dropped off the IBD Leaderboard, has dropped nearly 40% from its all-time high of 310.16 in July. The Leaderboard is IBD's curated list of leading stocks that stand out on technical and fundamental metrics.

Another e-commerce firm, Shopify ($SHOP), has been volatile. SHOP stock recently recorded more than $1 billion in quarterly sales for the first time. Shopify stock trades 4% below an entry point as of Nov. 29.

As it stands, not many fintech stocks hold stellar technical ratings, such as Composite Ratings of 90 or above. Square ($SQ) is one example. SQ stock holds a Composite Rating of only 63 out of a best-possible 99, according to IBD Stock Checkup.

The IBD Composite Rating is a blend of five other IBD stock ratings: the EPS Rating for earnings per share, Relative Strength Rating, Accumulation/Distribution Rating, SMR Rating for sales, profit margins and return on equity, and the industry group rating. The Composite Rating helps investors easily measure the quality of a stock's fundamental and technical metrics.

Fintech companies belong to a few IBD groups, including financial software and finance-investment management. The biggest IBD group of fintech stocks ranks No. 113 out of 197 industry groups tracked.

Some big-cap fintech stocks have underperformed, including credit card networks Visa ($V) and Mastercard ($MA) and Global Payments ($GPN). Visa stock is pursuing new bets in digital payments and cryptocurrencies.

More Fintech Companies Go Public
Shares in Fiserv ($FISV) and Fidelity National Information Services ($FIS) have also lagged. Some analysts speculate that Global Payments and Fiserv could rekindle merger talks.

Global Payments, Fidelity National and Fiserv are among the biggest merchant acquirers. They serve as middlemen between banks and retailers. They have contracts with retailers to handle the processing of credit cards and other transactions.

In 2021, the number of public fintech companies has jumped. However, several fintech companies have underperformed.

Also, restaurant tech vendor Toast ($TOST) launched its IPO on Sept. 20.

Earlier IPOs include cryptocurrency stocks Coinbase Global ($COIN) and Marathon Digital ($MARA) as well as Sofi Technologies ($SOFI), Marqeta ($MQ) and Affirm Holdings ($AFRM).

Sofi focuses on student and auto loans. It's evolving into a neobank, analysts say. Marqeta creates branded debit cards and prepaid cards for corporate customers.

Affirm competes in the buy now, pay later market. Shopify holds an 8% stake in Affirm. AFRM stock has dropped off the IBD 50 roster of growth companies.

Some high-profile fintech companies have yet to go public. Online bank Chime is one example. A recent funding round valued Chime at $25 billion. It delivers banking services through mobile phones.

Stripe Competes With Broad Range Of Fintech Companies
There have been big expectations for a Stripe IPO. But a Stripe IPO may wait until 2022 or later.

Stripe in March raised $600 million in a new funding round that gave it a $95 billion valuation. That's up from $36 billion in April 2020.

"As an eCommerce-focused payment facilitator and merchant acquirer, Stripe competes with companies including Adyen, PayPal, Square, Fidelity National, Fiserv, Global Payments and Chase," MoffettNathanson analyst Lisa Ellis said in a recent note to clients.

"Stripe is best known for its relationships with e-commerce darlings Shopify and Amazon.com ($AMZN), as well as its developer-centric model that has made it a favorite payment processor among Silicon Valley startups."

Stripe has not made any public disclosures on revenue, payment volume or earnings before interest, taxes, depreciation and amortization. Its investors include Shopify.

"Stripe's initial roots were as a payments partner for startups and technology-forward SMBs, but today its enterprise segment is its largest and fastest growing," Credit Suisse analyst Timothy Chiodo said in a note. "Our recent industry discussions suggests that Stripe is increasingly being asked to participate in RFPs for large enterprises and merchants."

Also, venture capital funding has been strong for startups in payments, e-commerce, online lending and cloud software.

Fintech Stocks: Use The Right Investing Tools
If you think the time is right to move into fintech stocks, learn more about using technical charts in assessing payment stocks to buy.

The big picture is that industry incumbents face a challenge as big technology companies expand their role in payments.

A wave of fintech startups also aims to push aside the traditional banks and credit card companies. As consumer spending shifts to online and mobile platforms, there's less of a role for cash and checks.

A battle is raging among fintech companies like PayPal and Square to draw in merchants to payment ecosystems, along with billions of dollars in transaction fees. For some fintech companies, there's pressure to build out two-sided platforms serving both merchants and consumers.

Look for fintech companies with intellectual property that creates barriers for rivals. Also, target fintech stocks that are growing their total addressable market by expanding products and services.

Other financial metrics to watch include total payment volume and gross merchandise volume.

Technology Giants Push Into Financial Technology
Apple ($AAPL) and Goldman Sachs ($GS) jointly launched a new consumer credit card. The new Apple credit card works with the iPhone's digital wallet app.

Then, there's Facebook Pay. The payment system works across Facebook ($FB), Messenger, Instagram and WhatsApp. Analysts say there could be upside for PayPal stock as Facebook pushes into payments.

Meanwhile, Amazon is getting traction with a digital payment system. Amazon Payments allows third-party merchants to improve checkout rates by letting shoppers pay with their Amazon account.

In addition, Amazon and Synchrony Financial ($SYF) have partnered for a credit card for Prime program members. Alphabet's ($GOOGL) Google also is mulling a move into providing checking accounts.

Payment Stocks: Mergers And Acquisitions
Before the coronavirus outbreak, a consolidation wave boosted some payment stocks and private companies.

PayPal in 2019 bought a stake in Argentina-based MercadoLibre ($MELI). Analysts expect more tie-ups between fintech and e-commerce companies, such as Shopify.

PayPal in November, 2019, acquired consumer shopping app Honey Science for $4 billion.

However, federal regulators recently blocked Visa's acquisition of startup Plaid for $5.3 billion.

Fiserv in July 2019 completed the purchase of First Data ($FDC) for $22 billion in stock. Fiserv sells information and commerce-related services to banks, credit unions and investment managers.

Global Payments and Total System Services in May 2019 agreed to merge in a $21.5 billion all-stock deal. The merger created a stronger competitor in the merchant acquirer market.

In addition, Fidelity National in March 2019 agreed to buy Worldpay (WP) for $35 billion in cash and stock.

Blockchain May Figure In Fintech Future
The business-to-business payment industry is shifting from paper checks to automated software tools and digital platforms. Incumbents in the B2B payments market include Worldpay, First Data and Total System Services.

In banking, artificial intelligence is playing a role in detecting fraud. Cloud computing software is replacing paper-based systems in the business-to-business payment

In addition, Blockchain technology could have a long-term impact on fintech stocks.

The technology could play a role in securities clearing and settlement, digital identity and payments as soon as 2025, say the most bullish observers. Blockchain is the software technology behind Bitcoin and other cryptocurrencies. It's a shared public ledger, which tracks transactions and ensures that the record of those transactions remains transparent and tamper-proof.

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