Square stock and PayPal (PYPL), which surged as their Cash App and Venmo peer-to-peer payment apps became more indispensable during the pandemic, are among a batch of payment-related stocks worth a look this weekend. Square (SQ) and PayPal stock could be setting up for another run as they turn those digital wallets into something much more powerful.
The watch list also includes a Covid-era laggard in Mastercard (MA) stock, which is bound to make up some lost ground once cross-border travel finally takes off. Discover Financial Services (DFS) has been a star, but its tailwinds could grow as Americans start to borrow again. There’s also Bill.com (BILL), a play on moving small and midsize business payments from paper to the cloud, which has been growing by leaps and bounds but may just be getting started.
Some finance stocks, banks in particular, have been under pressure lately as the sinking 10-year Treasury yield and flatter yield curve squeeze net interest margins. Of this group, that’s only a significant issue for DFS stock, but it’s held up quite well.
PayPal stock is on IBD Leaderboard, the cream of the crop. It’s also on IBD’s Long-Term Leaders list, comprising companies with a multiyear track record of solid earnings growth and stock performance. Mastercard stock was a former Long-Term Leader, but was knocked off its stride by Covid’s clampdown on travel. BILL stock is part of the elite IBD 50 list, as well as the SwingTrader portfolio that strives to take advantage of short-term trends by racking up a lot of modest wins.
Square has two distinct businesses. Before Cash App’s success, Square had already made its mark supplying merchants with simple point-of-sale credit-card systems and services. Now Square is trying to lend the strengths of each business to help fuel the other.
Cash App has already become much more than a peer-to-peer system, with 10 million monthly Cash Card users. In Q1, Square took the first step in connecting its ecosystems, creating a loyalty program that encourages Cash Card users to transact with Square merchant sellers.
Cash App accounts got a big inflow from stimulus checks earlier this year, boosting usage — and transaction fees. Transactions per user rose to 18 per month in Q1, giving Square a big edge over PayPal in engagement. Usage also likely got a boost from crypto trading.
On Friday, DA Davidson analyst Christopher Brendler said any Bitcoin-related weakness in Square stock is worth buying. He kept a 275 price target for SQ stock.
Square stock is nearly five months into a consolidation and nearly 15% below an official 283.29 entry, according to MarketSmith. But Square could be working on a handle that needs two more days to complete. That would lower the official buy point to 254.88.
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PayPal has huge reach, with 392 million users of its apps, including 70 million Venmo users. Now it wants to better capitalize by providing its users much more functionality. The plan is to turn its digital wallets into a super-app where consumers “can live their financial lives,” as millennials say they want, CEO Dan Schulman said at a June 9 Bank of America technology conference.
The release of PayPal’s digital wallet 2.0 is imminent and could provide a catalyst for the stock. PayPal stock already has some momentum after its new transaction fee schedule announced last month. The boost in fees for branded PayPal products reflected the value it brings to merchants: transactions using PayPal are more likely to go through without a problem.
Evercore ISI analyst David Togut hiked his PayPal stock price target to 370 from 313 on Friday based on the earnings boost from the price change.
PayPal stock rose back above a 296.11 buy point from a cup-with-handle base on Friday, closing at 300.21. PYPL stock cleared an early entry point of 277.96 on the strength of its price increase on June 18.
PayPal cleared that early entry amid strong volume. Last week’s breakout was in lighter trade, which is not ideal.
PayPal’s relative strength line is not yet at a new high. But it’s right at the handle high and the best in four months. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
The good news for Mastercard, as well as rival Visa, is that “the core reason to love the (payment) networks is still intact,” MoffettNathanson analyst Lisa Ellis told IBD. Despite all the new names and recent innovation in fintech, they remain the “primary payment rails for the digital economy,” at a time the shift to digital payment continues to have plenty of momentum.
Mastercard, like Visa, also is extending the functionality of its payment rails, going after $10 trillion in cross-border business-to-business payments.
Still, Mastercard may not regain its status as a Long Term Leader until there’s more visibility in an international travel recovery. We’re not there. On Thursday, Japan said it will close Olympics venues in Tokyo to spectators amid a Covid upsurge. As of late May, Mastercard says U.S. domestic travel bookings had regained pre-pandemic levels but international booking were still down by about one-fourth.
Mastercard stock is about 7% below a 401.60 buy point. Its RS line has been trending lower, as MasterCard stock badly lags the S&P 500. That’s not exactly an enticing set-up.
Still, vaccine progress should offer some confidence that a fuller resumption of travel will happen in 2022. If that’s the case, then Mastercard’s current spot, just perking back above its 50-day average, isn’t a bad entry point. Long Term Leaders are the kind of stocks worth scooping up at a bargain when they bounce off their 50-day averages.
Visa stock, a laggard in 2020, has basically been keeping pace with the S&P 500 over the past six months. That may be partly due to the success of its Visa Direct real-time push payments platform.
On Friday, Visa stock rose back above a 237.60 buy point from a flat base.
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Discover Financial Services, with its no-fee credit card and online banking services, has been in good position to capitalize on the pandemic’s accelerated shift to digital finance.
Still, its revenue has stayed in negative territory from a year ago. One key issue is its shrinking loan portfolio in most categories. Total loans fell 7% from a year ago to $86.3 billion in the first quarter.
But there may be good news on that front. On Friday, Barclays analyst Mark DeVries hiked his Discover stock price target to 146 from 132, keeping an overweight rating, saying May data shows positive sequential growth over the prior month for the first time in more than a year.
Discover stock jumped 6.2% to 122.40 on Friday, springing back above its 50-day line. That offers an early entry point. A weekly MarketSmith chart now shows DFS stock has a 125.48 buy point from a flat 5-week base.
Bill.com, which came public at the end of 2019, has been a massive winner. Revenue is seen growing 40% this year and nearly 30% next year, but profitability is not yet in sight, according to Zacks Investment Research analyst estimates.
Bill.com has 115,000 small and midsize business customers, but that’s out of a universe of 6 million small businesses with employees. Including businesses that receive payment via its platform, Bill.com has 2.5 million members.
“Most SMBs still rely on manual processes to run their financial operations and paper checks,” CFO John Rettig said in a June 9 presentation at a Bank of America technology conference.
Bill.com has plenty of avenues for growth. Its focus has been on automating accounts payable and accounts receivable. But in May, Bill.com acquired Divvy, which manages corporate credit card transactions, for $2.5 billion in May. That makes Bill.com a “one-stop shop” for managing all business payments and receivables, Rettig said.
Bill.com is also extending its reach to mid-market companies, with revenue of more than $10 million. And it has a huge network of accounting firms, along with 8 of the 10 biggest banks, as partners to extend its reach.
Bill.com stock is about 1% below a 192.99 cup-with-handle buy point from a consolidation that began in February.
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