The 3 best Fintech stocks to buy in January
The easiest way to find the best fintech stocks to buy is to examine the holdings of passively managed fintech ETFs 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% so far this year compared to 3.4% for 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 to life.
The Global X Fintech ETF provides exposure to 71 fintech shares, thus avoiding too much company-specific risk. The ARK Fintech Innovation ETF typically owns between 35 and 55 stocks at any given time. As of January 12, it held the 30
If you don’t want the task of tracking all the fintech stocks currently trading on US exchanges, both of the ETFs mentioned above are good options. But for those looking to invest in individual fintech stocks, the funds’ top holdings are a good place to start.
All three of my picks for the best fintech stocks to buy have now been beaten in 2022. That makes all three excellent buys if you’re willing to hold for the long term.
| SQ | Block | $70.06 |
| INTU | Intuit | $396.44 |
| TOAST | Toast | $19.20 |
Block (SQ)
Source: Sergei Elagin/Shutterstock
Block (SNEEZE:SQ) is the largest holding of FINX with a weight of 7.4%, 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 “outcompete” from “neutral.” The analyst maintained his neutral rating on Block for two years before upgrading the stock on January 3. Koning raised his price target by $16 to $78, which is 11% higher than whre it is being traded at the moment.
Koning believes the company’s hefty cash balance of $4.6 billion, as of Sept. 30, should contribute another $160 million (20 cents per share) of pretax income in 2023, assuming a 2% rise 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 dollars, 51% in Cash App gross profit at $774 million and 29% in Square gross profit at $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 stronger than ever from the pandemic,” Lisa Ellis, CEO at MoffettNathanson wrote in a Nov. 4 memo to clients, Barron’s reported.
With shares trading at just 2.3 times sales, well below the five-year average of 8, Block is the best of the best fintech stocks to buy.
Intuit (INTU)
Source: Julio Ricco/Shutterstock
Intuit (NASDAQ:INTU) is the fourth largest holding of FINX with a weight of 6.5%, while it is the 19th largest holding of ARKF with 1.6%. The 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 in $12 billion cash and stock for Mailchimp, which has helped accelerate Intuit’s growth with small and medium businesses.
In the company’s most recent quarter, Credit Karma grew revenue by another 2% 425 million dollars. Overall, the company’s revenue increased 29% to $2.6 billion, with a 13 percentage point contribution from Mailchimp.
For the full fiscal year 2023, Intuit expects revenue and adjusted earnings per share of $14.035 billion to $14.25 billion and $13.59 to $13.89, respectively. Although the top-line estimate is lower than previous guidance, management still estimates 11% revenue growth and 16% revenue growth in the middle of 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 con for Intuit is the Credit Karma business. The management has gone from estimating double-digit growth in revenue in the financial year 2023 to a double-digit decline.
Of 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 trading now.
Toast
Source: TonelsonProductions / Shutterstock.com
Toast (SNEEZE:TOAST) is the 19th largest holding of FINX with a weight of 1.7%, and it is the 11th largest holding of ARKF with 3.9%. It is the stock is up 6.5% in 2023 and 33% in the past six months.
The provider of an end-to-end software-as-a-service platform for the restaurant industry reported third-quarter results in mid-November. They were so good that the management increased guidance for the whole year.
On the top line, Toast now expects revenue of at least $2.69 billion, $72 million higher than previous guidance. While the company expects to post an EBITDA loss of $117 million to $127 million, that’s down from a previous range of $140 million to $160 million. Moreover, the company’s losses are heading in the right direction.
Gasoline reported comments from Mizuho analyst Dan Dolev on January 9. In a nutshell, Toast takes market share from Square in the restaurant arena, which accounts for 30% of Block’s gross payment volume.
Analysts are becoming more optimistic about the future. Of 20 analysts covering TOST, 12 rate it as either “overweight” or “buy”. Their average target price of $24.53 is 28% highis than where it is currently traded.
In mid-November, Needham analyst Mayank Tandon had some very positive comments for clients about Toast, according to Barron’s. “We believe TOST provides critical solutions to restaurants that can help manage costs and drive incremental sales that we believe will be critical in times of economic stress,” Tandon wrote in a note to clients.
TOST has the greatest risk of today’s top three fintech stocks, but may also have the greatest reward. So keep that in mind when allocating capital.
On the date of publication Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, with reservations InvestorPlace.com Guidelines for publication.
