3 key growth stocks for the upcoming new bull market
With inflation numbers still hot, it’s hard to see the Federal Reserve easing its tightening stance on the economy. But some market experts are pointing to a slowdown in August inflation data relative to July as a sign that we may have already seen the bottom for the S&P500and that better days are ahead for investors.
If a bull market returns, fintech stocks could be among the first sectors to recover. Investors hoping to profit from this might seriously consider Affirm holdings (AFRM -7.04%), To block (SQ -6.20%)Where MasterCard (MY -0.58%) shares. These top three fintech stocks are valuable additions to the growth stock portion of an investor’s portfolio.
1. Affirm gets a boost from its huge partners
Anthony Di Pizio (Affirm): Buy Now, Pay Later (BNPL) is a relatively new variant of installment loans that has exploded in popularity over the past few years. This is disrupting traditional consumer credit products like credit cards, in part because providers like Affirm are using technology to appeal to younger consumers. It’s popular, in part, because it charges interest rates that vary based on credit scores instead of charging a fixed, all-in (often high) rate.
Affirm’s BNPL platform integrates with its merchant partners’ online stores, so customers don’t even need a credit or debit card or bank approval to fund their purchases. When they navigate to the checkout of participating sellers, Affirm will appear as a payment option and fund the transaction with just a few clicks. It’s a level of convenience designed for the modern consumer, with a simple repayment structure that often spans four equal installments and no late fees or penalties.
Affirm is a leader in the BNPL industry, and it has a few successful technology partners to back it up. The company has deals with e-commerce giants Shopify and Amazon be their exclusive BNPL supplier. Shopify merchants can now add Affirm as a payment option for their customers at checkout, and they accept the offer in bulk. At the end of fiscal 2022 (ending June 30), Affirm had 235,000 merchants in its ecosystem, up 710% year-over-year driven primarily by its agreement with Shopify.
Its number of customers exceeded 14 million, almost doubling in the same period. Overall, it generated $1.3 billion in revenue for fiscal 2022, up 55% and marking the first time it passed the $1 billion mark.
Affirm’s stock price is down 86% from its all-time high amid the tech market selloff, mostly because it’s a loss-making company right now so expand its services. The lack of profits is perceived as a high risk in this environment. However, Affirm’s business is growing so rapidly that profitability should not be the priority at this time. When a new bull market arises, its stock is likely to rally and generate strong gains.
2. Block benefits from two incredibly powerful ecosystems
Neil Patel (To block): When it comes to fintech and digital payments, perhaps no name commands more attention than Block. Founded by Jack Dorsey, this innovative company, formerly known as Square, currently makes a compelling investment case.
On the merchant side, Block operates what is now called Square, which offers small businesses a wealth of software, hardware and financial services products, ranging from point-of-sale solutions and inventory management to cash loans. payroll and working capital. In the last quarter, Square processed $48.3 billion in gross payment volume (GPV), up 24.5% year-over-year, with a larger share coming from what Block calls mid-market traders, or those generating at least $500,000 in annualized GPV.
Block also owns one of the most popular personal finance tools on the market, Cash App, which had 47 million monthly active users as of June 30. Cash App can be used to send or receive money instantly, spend at merchants, set up direct deposits, and even buy stocks and Bitcoin. In the second quarter of 2022, Cash App’s gross profit of $705 million was 29% higher than the prior year period.
While Square and Cash App are exceptional companies with positive characteristics on their own, what makes Block special is its ability to integrate these two segments over time. The company’s acquisition of specialist BNPL Afterpay, completed in January, strengthens the bond between merchants and consumers by adding a hugely popular feature to both platforms that is expected to increase transaction counts and payment volume over time. And that will ultimately result in a higher gross profit for Block.
With shares down 57% in 2022 and trading at a selling price multiple of just over two today is a good time to buy stocks in bulk. The company is a leader in digital payments and still has plenty of room for growth.
Don’t sleep on this digital payments network leader
Nicholas Rossolillo (MasterCard): Bull markets are not just about stock market recovery. It is also about healthier economic growth. And if the global economy gets back on its feet, digital payment network giant Mastercard could have a lot to gain.
Don’t get me wrong, though, this isn’t a super high-growth financial tech poised to deliver super-attractive returns. Mastercard is already a titan that generated $5.5 billion in revenue last quarter alone, a 21% year-over-year increase. Nothing to complain about, especially given the stress the global economy is currently under due to inflation.
For the foreseeable future, Mastercard’s “railway” facilitating the movement of digital money will remain dominant alongside peers Visa, and a stabilization of the global economy would help improve Mastercard’s financial results. Additionally, over time, Mastercard’s profitability tends to grow at an even faster rate than revenue, since its core operations are already paid for. This means that any additional income Mastercard generates generates little additional cost, which equates to a lot of cash being passed on to shareholders. Namely, adjusted net income increased 29% in Q2.
What’s amazing here is that Mastercard is still discovering many new uses for its network, even under less than ideal economic circumstances. The use of paper money is still prevalent around the world, so Mastercard can sustain its growth for years to come by converting more users to digital cash. It also offers value-added services such as data security, consumer engagement tools, and software-based banking products. This segment grew by 18% in the last quarter, benefiting from a growth of three percentage points thanks to small complementary acquisitions.
Overall, this is an incredibly solid investment that can deliver steady growth for years to come as the financial services industry gradually undergoes digital transformation. Mastercard currently trades for 32 times trailing 12-month earnings per share, or 37 times enterprise value to free cash flow. It’s a premium price tag that has stuck with Mastercard for a long time – and for good reason, as it has demonstrated its ability to grow steadily at a healthy rate for many years.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. Neil Patel holds positions at Amazon, Bitcoin, and Block, Inc. Nicholas Rossolillo holds positions at Amazon, Bitcoin, Block, Inc., Mastercard, Shopify, and Visa. The Motley Fool holds positions and recommends Affirm Holdings, Inc., Amazon, Bitcoin, Block, Inc., Mastercard, Shopify, and Visa. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.