Markets grew increasingly cautious on fintech stocks when the Federal Reserve said it would increase interest rates. Investors are justifiably bearish. Banks enjoy higher margins from the interest rate spreads. Conversely, fintech firms rely less on bank deposits for profits.
PayPal (PYPL) and Block (SQ), previously known as Square, are two fintech stocks to consider.
SQ stock failed to break out above $250. Investors sold the stock on valuation concerns. Operating costs could rise during the Fed tightening cycle. The economic slowdown will increase competitive pressures. Renaming itself Block, CEO Jack Dorsey is pivoting the company toward cryptocurrency. He envisions a growing role of bitcoin for facilitating transactions. For example, Block introduced a Cash App feature that lets users send stock or bitcoin gifts. They may send as little as $1.00.
Investors ignore the potential in CashApp as a commission-free trading offering. Instead of holding Robinhood (HOOD), SQ stock is compelling.
Markets signaled growing disappointment in PayPal’s growth prospects. Rumors circulated that it would buy Pinterest to rekindle growth. The fintech already bought Honey to strengthen its positioning in e-commerce. Pinterest would have cost PayPal too much. Valuations are poor, growth rates are waning but profitability will improve.
Watch PYPL stock. Wait for the stock to the bottom.
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