Why These 7 Fintech Stocks Should Be on Your Radar in 2024
As the macro picture appears increasingly brighter, fintech stocks are coming back in vogue among investors. In recent weeks, many financial technology stocks have soared, in anticipation of possible interest rate cuts by the Federal Reserve in 2024.
Although higher rates have been beneficial for traditional financial services firms (as high rates mean higher net interest margins), elevated interest rates have been a net negative for this segment of the finance sector.
For instance, as the Wall Street Journal reported earlier this year, “higher for longer” interest rates have dampened demand for fintech services. High interest rates and high inflation have also put the squeeze on consumer spending, affecting sentiment for payment-focused fintechs.
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Yet now, as inflation cools, and if interest rates come back down, the industry is well-positioned to experience a resurgence in growth. While there are many ways to play this “fintech” recovery, such as by purchasing high-profile fintechs like PayPal Holdings (NASDAQ:PYPL), you want to instead take a look at some of the lower-profile names that are nonetheless strong long-term opportunities.
That’s the story here, with these seven fintech stocks to buy.
Adyen (ADYEY)
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Headquartered in the Netherlands, Adyen (OTCMKTS:ADYEY) is a rising star among the world’s largest digital payments companies. During the pandemic era, the company experienced a sharp increase in growth and profitability, and shares soared steadily higher.
However, the post-pandemic high inflation/high interest rate hangover took its toll on Adyen and on ADYEY stock. Shares especially took a dive late last summer, after the company reported a slowdown in sales growth. Since then, however, sentiment for ADYEY has bounced back in a big way.
The release of more promising results/guidance sparked the start of a big rebound in November. The aforementioned positive macro news has helped to extend this rally. Although pricey at 63 times forward earnings, if the company can meet/beat its current financial objectives (20%-30% annual revenue growth, EBITDA margins above 50%), ADYEY could grow into its valuation, and then some.
Fiserv (FI)
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As I discussed last month, Fiserv (NYSE:FI) is one of the top fintech stocks in the eyes of sell-side analysts. You don’t have to dive too deep to figure out why Wall Street is very bullish on this large yet low-profile payment processing solutions company.
The forward earnings of FI stock are valued at around 18 times. While this may seem like just a fair valuation on the surface, this forward earnings multiple may in fact be too low, given Fiserv’s high exposure to the digital payments secular growth trend.
Thanks to this trend, Fiserv appears poised to deliver earnings growth in the low-to-mid teens range annually between now and 2025. If this level of growth continues, not only could FI shares move higher in line with increased earnings.
The stock may be a prime candidate for multiple expansion, with its forward valuation over time moving from the high-teens to the low-20s.
Shift4 Payments (FOUR)
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Shift4 Payments (NYSE:FOUR) shares have been on fire lately, and not just because of the recent interest rate news. In November, investors responded positively to this digital payment company’s “beat and raise.” quarterly earnings report.
That’s not all. FOUR stock has also recently received a boost thanks to a third factor: takeover speculation. On Dec. 14, rumors emerged that Global Payments (NYSE:GPN) was considering making a bid to acquire Shift4.
While Global Payments has denied that it is holding discussions to buy the company, this news has brought attention to FOUR’s potential value to a strategic acquirer.
Several analysts have argued that Shift4 Payments could be worth upwards of $100 per share to the right buyer. This stock trades for around $74 per share today. Given its status as a takeover target, plus other recent positive developments, keep an eye on FOUR.
Nu Holdings (NU)
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Nu Holdings (NYSE:NU) is one of the hottest fintech stocks out there. Based in Brazil, Nu Holdings is the parent company of Nubank.
Nubank operates as a digital financial services firm in not only its home market, but in Mexico, Colombia, and other markets as well.
Founded just ten years ago, neobank has since scaled into a financial institution with tens of billions in assets, billions in annual revenue. Nu has also this year achieved consistent profitability. Admittedly, while not well-known in the U.S., NU stock is by no means “under-the-radar.”
Stateside investors (including Warren Buffett) are well aware of the company and its growth potential. Yet while NU trades at a pricey 39.8 times forward earnings. As InvestorPlace’s Tyrik Torres recently pointed out, high growth has continued despite challenges like high interest rates, and Nubank has ample room to keep growing in the Mexican banking market.
OppFi (OPFI)
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Fintechs have been bouncing back lately, but this has been especially the case with OppFi (NYSE:OPFI) shares. OPFI has doubled in price since October.
Last month, the company, whose platforms facilitate credit products like installment loans, reported better-than-expected results for the preceding quarter.
Namely, earnings for OPFI stock during Q3 came in at 16 cents per share. That was well-above sell-side forecasts calling for earnings of 7 cents per share. Still, despite OPFI surging thanks to these well-received results, it’s not as if the stock has all of sudden become expensive.
OPFI today trades for only 9.2 times earnings. Although the risky nature of its installment loan business helps to justify this multiple somewhat, if macro conditions improve as expected, and OppFi continues to report solid numbers, the market may reward shares with a much higher valuation. This, plus further growth, could mean additional big gains ahead.
Pagaya Technologies (PGY)
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Pagaya Technologies (NASDAQ:PGY) has performed strongly in 2023. Even as shares in this provider of AI-powered loan origination software has fallen sharply from its 52-week high, the stock is up over 48% for the year.
After a strong-yet-rollercoaster performance during this year, PGY stock is a top choice for fintech stocks for 2024. As discussed previously, Pagaya has made progress this year, in areas like loan securitization. The company has also carved out a niche in the subprime automotive loan market.
These efforts could really pay off in 2024, when the company is expected to experience a big jump in profitability. As Jeffries’ John Hecht put it, in its initial “Buy” rating on PGY issued Dec. 14 (price target of $2.50 per share), “Pagaya’s powerful network effect and product flywheel have positioned the company for ongoing success.”
SoFi Technologies (SOFI)
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When it comes to high-potential fintechs, you can’t skip over SoFi Technologies (NASDAQ:SOFI). This year, investor sentiment for this neobank has improved considerably. Shares are up by nearly 121% since January.
The resumption of student loan repayments played a big role in this, but investors are also growing more confident in the long-term bull case for SOFI stock. As I’ve argued in past coverage, SoFi keeps scaling up at a rapid pace, and is on the cusp of GAAP profitability.
With incremental revenue growth expected to result in outsized earnings growth, SOFI is not as expensive as it seems (shares today trade for 156.9 times estimated 2024 earnings).
Over a longer timeframe, with CEO Anthony Noto focused on building SoFi into a top ten “big bank” by catering to affluent, tech-savvy customers, it may not be hyperbole to say that the sky’s the limit for SoFi.
On the date of publication, Thomas Niel 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 writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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