For investors seeking opportunity in tough macroeconomic conditions, buying these stocks would be a smart move.
Between roaring inflation, rapidly rising interest rates, and the threat of recession on the horizon, the global economy faced challenging, volatile conditions over the last couple of years. The tumultuous backdrop was particularly hard on fintech stocks.
Amid tough macro conditions, even profitable companies that continued to grow sales saw precipitous valuation pullbacks, but hard times for the fintech space won't last forever. With that in mind, read on for a look at two promising stocks that investors can buy at massively attractive discounts.
1. PayPal stock has scarcely been cheaper
Parkev Tatevosian: PayPal (PYPL -1.35%) stock trades down a whopping 76% off its highs in mid-2021. PayPal thrives when consumers are spending money online. It managed this by making it more convenient to shop online. PayPal made it possible for a simple face ID log-in to facilitate payment, as quickly (or even quicker) than using your debit or credit card. There was a lot of that during the pandemic, of course.
Unfortunately, after being cooped up at home for what seemed like an eternity, consumers again found opportunities to spend their time and money offline and away from home. For PayPal, that meant slowing revenue growth. Indeed, PayPal's sales increased by just 8.5% in 2022. That's in stark contrast to its performance from 2013 to 2021 when its slowest year of revenue growth was 15% in 2019.
This slowdown is unlikely to persist long-term. Shopping online is significantly more convenient than shopping in person. People spent an estimated $1 trillion in e-commerce shopping in 2023. That figure is estimated to rise to $1.56 trillion by 2027. The near term might be pressured for PayPal, but it's riding a strong long-term tailwind.
Investors can feel good about buying PayPal stock at a very reasonable forward price-to-earnings ratio of 13.3. The company is not without risk, but the risk versus reward is in investors' favor at this valuation.
2. StoneCo stock has explosive potential
Keith Noonan: StoneCo (STNE 7.42%) is a Brazil-based payment processing and lending company that's seen volatile trading over the last few years. To be more descriptive, it's a fintech services provider with thriving payment solutions for small and medium-sized businesses and a credit business that was crushed by headwinds related to the coronavirus pandemic and flaws in Brazil's national registry system, which was used for loan underwriting.
Even after discharging or selling off much of its credit portfolio at basement-level prices, StoneCo still carries roughly $79 million in bad debt on its books. Due to macroeconomic pressures and the collapse of the credit business, the company's share price is down approximately 91% from its high. But there's an opportunity here.
StoneCo's fourth-quarter earnings report arrived with strong performance for the core payments business and signs the company is emerging from challenges created by its credit business. Sales and earnings performance for the period beat both internal guidance and the average analyst estimates, with revenue growing 44% year over year and non-GAAP (adjusted) net income swinging into positive territory at $46.4 million from a loss of $6.4 million in the prior-year period.
While StoneCo shouldn't be thought of as a low-risk stock, the market appears to be too pessimistic about the company, and it trades at multiples that leave room for explosive upside.
Valued at less than 15 times expected earnings for this year and less than 1.3 times expected sales, the Brazilian fintech services provider offers an attractive risk-reward proposition at current prices. If macroeconomic pressures ease and the company maintains solid footing in its corner of Brazil's payment-processing space, the stock stands a very good chance of delivering strong returns.
PayPal and StoneCo are poised to be winners
While PayPal and StoneCo saw their sales and earnings performance hampered by challenging macroeconomic conditions, both companies continued to serve up encouraging results. The big stock sell-offs reflect just how tough the macroeconomic environment is and the fact that more headwinds are anticipated in the near term. But the market appears too pessimistic about both businesses. PayPal and StoneCo stocks trade at levels that create plenty of upside potential, and taking a buy-and-hold approach with these stocks could produce fantastic performances for patient investors.
