The easiest way to find the best fintech stocks to buy is to examine the holdings of fintech ETFs such as the passively managed Global X Fintech ETF (NASDAQ:FINX) or actively managed ARK Fintech Innovation ETF (NYSEARCA:ARKF), arguably America’s best-known fintech ETF due to portfolio manager Cathie Wood’s notoriety.
The Global X Fintech ETF provides exposure to 66 fintech stocks, thereby avoiding too much company-specific risk. The ARK Fintech Innovation ETF, as I mentioned, is managed by Wood and some of Ark Invest’s top minds. It typically owns between 35 and 55 stocks at any given time.
If you don’t want the task of following all of the fintech stocks currently trading on U.S. stock exchanges, these ETFs are good alternatives. However, for those who want to bet on individual names, the funds’ top holdings are a good place to find the best fintech stocks.
All three of the stocks below have gotten hammered in 2022 and are excellent buys if you’re willing to hold for the long term.
Block (SQ)
Block (NYSE:SQ) has lost 56% of its value in 2022 and is down 76% 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. Afterpay provides Square sellers with an additional feature to offer customers, while users of Cash App are given a way to manage their spending and cash flow over extended periods.
Block reported better-than-expected third-quarter results on Nov. 3, causing shares to jump 11.5% in a day. Highlights from the quarter included a 17% year-over-year increase in revenue to $4.52 billion, a 51% increase in Cash App gross profits to $774 million, a 29% increase in Square gross profits to $783 million, and a 40% increase in adjusted EBITDA to $327 million.
Analysts were pleased with the company’s results, including Lisa Ellis, senior managing director at MoffettNathanson. “After a wild ride over the past 2.5 years, Block’s business is emerging from the pandemic stronger than ever,” Ellis wrote in a note to clients, per Barron’s.
SQ stock is trading at 2.17x sales, well below its five-year average of 8.12x. Block remains my top fintech pick.
Toast (TOST)
Shares of Toast (NYSE:TOST), which operates a cloud-based and digital technology platform for restaurants, is down 40% year to date and 70% from its all-time high of $69.93, made a little more than a year ago.
The company reported strong Q3 results on Nov. 11 and upped its guidance. Revenue was up 55% year over year to $752 million, beating expectations, while its adjusted net losses fell to $98 million from $254 million in Q3 2021. For the full year, management expects revenue of at least $2.69 billion, $72 million higher than its previous guidance. On the bottom line, it expects an EBITDA loss of $127 million on the high side of its range, down from $140 million to $160 million previously.
“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,” Needham analyst Mayank Tandon wrote in a note to 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.” In other words, according to Tandon, Toast isn’t toast should the economy worsen.
Of the 19 analysts covering TOST, 12 rate it “overweight” or “buy,” with a target price of $25.09. That implies upside of 21% from current levels.
Intuit (INTU)
Shares of financial software company Intuit (NASDAQ:INTU) are down 38% so far in 2022 and nearly 45% from its all-time high of $716.86, made roughly a year ago. A big reason for its declining share price is its difficulties with its Credit Karma acquisition. Intuit paid $7.1 billion for the company, best known for providing free credit scores, in February 2020.
Credit Karma announced on Nov. 1 that it was freezing hiring due to “revenue challenges due to the uncertainty of the economic environment.” For the fiscal quarter that ended April 30, Credit Karma’s revenue surged 48% to a record $468 million. In the subsequent quarter, ended July 31, revenue grew just 17% to $475 million.
At the same time, Intuit reported the Credit Karma hiring freeze, it reiterated its overall operating income and earnings per share growth for fiscal 2023. Intuit expects non-GAAP operating income to increase by 18% in 2023, at the midpoint of its guidance, to $5.31 billion. Despite the Credit Karma uncertainty, Intuit expects its fiscal 2023 revenue to grow by 23% to $25%.
It’s hard not to appreciate how much Intuit has grown over the past 12 years. In July 2010, the company had 29 million customers. At the end of July 2022, it had 103 million. Further, the company estimates that its global total addressable market is $312 billion. Since its managed to grab very little of it thus far, the opportunity remains significant.
Of the 27 analysts covering INTU stock, 21 rate it “overweight” or “buy,” with a target price of $516.95, which is 30% higher than where it’s currently trading.
— Will Ashworth
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Source: Investor Place