5 Fintech Stocks to Buy As This Mega Trend Gains Steam

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Fintech, which is short for “financial technology,” has been a booming category during the past few years. Some of the drivers include smartphones, cloud computing, blockchain and artificial intelligence.

Many fintechs are still private, like Stripe, Betterment, Ellevest and Robinhood. According to a report from KPMG, VCs (venture capitalists) invested $14.2 billion across 427 companies during the first half of 2018. In fact, we’ll probably see some of them hit the IPO market this year.

But there are still plenty of fintech companies that are publicly traded. Keep in mind that old-line operators, such as Mastercard (NYSE:MA) and Visa (NYSE:V), are considered part of this class.

With that in mind, here are five of the best fintech stocks to invest in now.

Fintech Stocks To Invest In: PayPal (PYPL)

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PayPal (PYPL)

A key Silicon strategy is to disrupt massive industries. While this can result in enormous profits, it is extremely tough to pull off. There are some industries that are quite resilient, such as financial services.

In light of this, PayPal (NASDAQ:PYPL) has taken a collaborative approach. Part of this has been about integrating many types of payment options, which is what customers prefer. But there has also been an aggressive focus on forming strategic alliances. A prime example is a deal with Walmart (NYSE:WMT) to get a piece of the unbanked market segment.

For the most part, PYPL’s strategy has worked extremely well. In the latest quarter, the net new active accounts increased by 9.1 million to 254 million and the transaction volume jumped by 27% to 2.5 billion. A major driver for engagement has been from mobile devices.

Another strong catalyst for PYPL stock is Venmo, which provides peer-to-peer payments services. Note that the app is a must-have for the Millennial generation. From 2016 to 2018, the total payment volume has gone from 3.2 billion to 16.6 billion.

While still early, PYPL is seeing lots of traction with monetization, with 24% of the user base participating. In fact, Venmo is likely to be a strong lever of growth in the coming years.

Finally, PYPL has a rock solid balance sheet. There is currently about $10.5 billion in liquid assets. In other words, the company has the resources to engage in aggressive M&A to further bolster its strong fintech platform.

Fintech Stocks To Invest In: Intuit (INTU)

Source: Mike Mozart via Wikimedia (Modified)

Intuit (INTU)

Founded in 1983, Intuit (NASDAQ:INTU) is a pioneer among fintech stocks. The company started off with simple check-balancing methods. But since then, INTU has expanded into lucrative categories like small business accounting and personal/business taxes.

These segments certainly generate substantial amounts of data, which allows for interesting use-cases. One example is QuickBooks Capital. It is a lending service that uses Intuit’s accounting data to make loans. Because of Intuit’s data advantage, about 60% of customers have obtained approvals for loans that would generally be deemed “un-lendable” by traditional financial institutions. The loss rate is also less than half the industry average.

It’s also important to note that INTU is bolstering its market opportunity by moving beyond its small business focus. Just look at QuickBooks Online Advanced. This is for the mid-market category (where the employee base ranges from 10 to 100). The market size in the U.S. is about 1.5 million.

In light of the innovation and diversified business assets, it should be no surprise that INTU has been a consistent grower. From 2010 to 2018, revenues have more than doubled to $6 billion.

Fintech Stocks To Invest In: Envestnet (ENV)

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Envestnet (ENV)

Envestnet (NYSE:ENV) develops sophisticated cloud-based technologies for financial advisors, such as independent providers and small- or mid-size firms. EVN’s software provides a full suite of services for front, middle and back office needs.

The company has built a solid base, with about 93,000 advisors (up 5% in the latest quarter). There are over $2.8 trillion in assets and more than 10 million investor accounts on the system.

One of the attractions of ENV is its open architecture. For the most part, the company strives to provide as many options for its advisors as possible. Note that there are over 18,000 products and more than 20,000 data sources.

ENV is also poised to benefit from a secular trend in the financial services industry, as more advisors transition from commissions to fee-based compensation. According to Cerulli, the amounts are expected to go from $9.7 trillion in 2017 to $16.7 trillion in 2021.

Fintech Stocks To Invest In: LendingTree (TREE)
Fintech Stocks To Invest In: Global X FinTech ETF (FINX)

Source: Investment Zen via Flickr (Modified)

Global X FinTech ETF (FINX)

If you do not want to pick individual fintech stocks to invest in, then you can invest in an exchange-traded fund (ETF) that tracks the fintech markets. And a good choice is the Global X FinTech ETF (NASDAQ:FINX), which has about $288 million in assets.

The fund includes 37 stocks that have an average market cap of $9.4 billion. The top five holdings include PYPL, Square (NYSE:SQ), Fiserv (NASDAQ:FISV), SS&C Technologies Holdings (NASDAQ:SSNC) and Fidelity National Information Services (NYSE:FIS). What’s more, about 30% of the portfolio companies are based outside the U.S.

In terms of the themes for the FINX ETF, they are fairly broad. They are P2P/marketplace lending, enterprise solutions, blockchain/cryptocurrencies, crowdfunding and personal finance software/automated wealth management.

The fund has an expense ratio of 0.68% and no dividend yield.

Tom Taulli is the author of High-Profit IPO StrategiesAll About 

The Amazing “Unicorn” Stock Paying a 34% Dividend

Wondering if it’s too late to jump on this market recovery? I have great news: it absolutely is not.

But you won’t reap the biggest gains by, say, putting cash into your typical S&P 500 name—or in a passive index fund like the SPDR S&P 500 ETF (SPY).

Because while rising corporate profits will likely propel the market higher this year, you’ll put yourself in a much better position by hitting out at the two sectors (and two specific buys) I’ll reveal now.

Both sectors will be on my personal list this year, and I’ll be recommending stocks from each one to members of my Contrarian Income Report service, too.

Let’s dive right in.

Buy No. 1: A 4.3% Dividend Today—a 34% Dividend Tomorrow

Real estate investment trusts (REITs) are famous for high dividends, but the one I’m going to show you today is in another league. It pays an already-decent 4.2% dividend now.

And thanks to its strong dividend growth, a yield on your original buy will likely soar to double digits in short order—just like the lucky folks who bought 10 years ago—they’re yielding an amazing 34% on their original buy today.

More on that in a moment.

First, the stock I’m talking about is CubeSmart (CUBE) a hidden gem in the ignored self-storage space—a business so boring it would make even the most conservative investor sleepy.

And check out how CUBE has lagged REITs overall, represented here by the Vanguard Real Estate ETF (VNQ), so far this year:

The Convoy Rolls by CUBE

In fact, CubeSmart is far from alone in lagging VNQ: all six publicly traded self-storage REITs have done so this year.

That’s partly due to worries that there are too many of these handy little mini-garages spread across the US. To be honest, that’s always a risk in a business like self-storage, which has fairly low barriers to entry.

But CubeSmart sidesteps that problem in a couple ways: one is by targeting cities with scores of renters. Check out how many thousands of people live within just three miles of its 1,072 stores:


Source: November 2018 CubeSmart investor presentation

The other safety valve? The company runs more than half its locations through deals with outside owners. That gives it steady fee revenue and cuts its risk.

This targeted approach has paid off in soaring revenue, which has hauled per-share funds from operations (FFO, the REIT equivalent of earnings per share) up with it:

Turning Empty Space Into Cash

That leads us back to CUBE’s spectacular payout growth: the quarterly dividend has spiked 1,180% in the last decade! So if you’d bought in 2009, you’d be yielding an amazing 34% on your investment now.

This dividend is almost certain to keep rising, helped by CUBE’s low (for a REIT) payout ratio: just 73% of FFO. And thanks to the overwrought negativity around self-storage REITs we can grab this one for just 18.5-times trailing-twelve-month FFO. A great deal.

Buy No. 2: This 8% Dividend Is a Bargain (for now)

CUBE isn’t the only discounted dividend left over from the selloff. You’ll find more in the too-often-ignored preferred-share space—and I’m about to reveal the perfect “one-click” way to profit (paying a fat 8% cash dividend every month, to boot).

Preferreds are the best-kept secret in investing: they look a bit like stocks (they can trade on a market, for example) and a bit like bonds (they trade around a par value and send out a fixed regular payment).

The best thing about them: outsized payouts! Which is why preferreds took a licking last year, as first-level investors fretted that rising rates would sideswipe them.

But now, with the Fed likely to take a breather, the pressure is off. The herd knows it, too: they’ve sent the passive iShares Preferred Stock ETF (PFF) up nearly as much as the S&P 500 since January 1.

A Headline-Driven Spike

But don’t worry, you can still get a deal in this space, thanks to the John Hancock Preferred Income III Fund (HPS), closed-end fund (CEF) boasting a “hidden” discount that’s leading us to serious upside in 2018.

So what is this discount, and why do we say it’s hidden?

The discount I’m referring to is the gap between HPS’s market price and its NAV, or portfolio value. In a nutshell, it’s a quirk of CEFs you and I tap for some nice gains. Here’s how:

Right now HPS trades right around par, and the gap has narrowed from 1.5% earlier this year. That may not sound like much of a move, but it’s helped catapult the fund’s price up an amazing 11%.

HPS’s Discount “Slingshot”

This is how powerful a narrowing discount to NAV can be in CEFs, and HPS is just getting started. How do I know? Simple history.

Consider that the last three times HPS’s discount turned into a significant premium (here I’m talking 1.7% and above) fell in September, October and November 2018—all times when rate-hike fears were at their wildest!

But now that the Fed has shifted into park, the runway is clear for HPS to soar to even bigger premiums (and more price upside). Let’s get in now and start tapping its outsized 8% monthly dividend while we prep for its next leg up.