Many financial technology stocks extended a recent slump on Monday, but there may be some opportunities within that beleaguered segment of the market, analysts say.
Though the S&P 500
turned around Monday to finish in positive territory after a tumult-ridden session, fintech names largely held in negative territory, amid continued concerns about rate increases and inflationary pressures, even as those assets saw losses pared in a frenetic Monday on Wall Street.
The Global X FinTech ETF
one of the most popular exchange-trade funds that offers exposure to financial tech companies, for example, finished the session with a loss despite a turnaround in the broader market that saw sharp, early declines for the S&P 500 index
the Nasdaq Composite
and the Dow Jones Industrial Average
turn into unlikely gains on the day.
The Global X FinTech ended Monday down 0.8%, even as S&P 500’s financials sector
closed up 0.2%, for example. Over the past 30-day period, the ETF is down 23.2% and down 18.1% in the year to date.
Analysts, however, see room for prospective investors to be discerning as they scour the selloff for fintech opportunities that can turn out to be winning investments in the longer run.
Monday’s declines in fintech came as bitcoin
running on the Ethereum blockchain, also saw a dramatic turnaround Monday. However, those assets have been mostly buffeted by concerns about a too-harsh regulatory environment for the nascent digital-asset sector.
Fintech has been swept up in the crypto tumble partly because many of those companies are exposed to digital assets such as bitcoin. Coinbase Global Inc.
runs an exchange for crypto trading, while PayPal Holdings Inc.
and Square parent Block Inc.
allow users to buy and sell virtual assets on their platforms or are otherwise exposed to the blockchain technology that underpins digital currencies.
However, analysts say investors should weigh the subtle distinctions between such fintech companies because those that have more options to drive revenue might perform better in the longer term.
“When it comes to crypto, we make a distinction between companies that are 100% levered to crypto,” such as Coinbase, “and those who benefit from crypto engagement,” such as Block and PayPal, Mizuho analyst Dan Dolev told MarketWatch. “We are more worried about the former because they have no other levers to pull if crypto is out of favor.”
A company like Coinbase “is getting more deservedly punished,” said fellow Mizuho analyst Ryan Coyne. But he thinks that it’s important investors can recognize the differences between Coinbase and other fintech names like Block and Affirm Holdings Inc.
that he sees as merely “lumped in with the broader selloff.”
Coinbase shares lost 0.3% in Monday afternoon trading, after they were down as much as 15.3% earlier in the session. They are down 29% over the past month.
Block shares, meanwhile, also pared losses on Monday to end down 0.7% after dropping as much as 13.6% earlier. Shares ended lower for the eighth straight session and are down 30% over the past month.
Affirm, which offers short-term consumer loans, saw its shares claw back to finish Monday trading up 1.1%, though it’s still off 42% on a one-month basis. Marqeta Inc. shares
ended down 3.1% Monday after dropping as much as 16.1% earlier in the day. Shares of the card-issuer logged an eighth straight decline.
“Regarding Marqeta and Affirm, they are just being unjustifiably punished by the market,” Dolev said. “They should shine again when investors realize that the fundamentals are going to be very strong over the coming quarters.”
Other losers within the fintech sector Monday included financial services company SoFi Technologies Inc.
which dipped 4.3% Monday, and financial services outfit Upstart Holdings Inc.
which was down 1.5%.
“I view the selloff (which is primarily interest rate & inflation-driven) as a fantastic opportunity to get into some long-term secular winners in payments at attractive valuations—particularly for longer-term holders,” she told MarketWatch.
Visa is her top pick, as she expects the company to benefit from factors like a travel recovery and a stronger position in Europe. She also likes Mastercard, Block, and financial services entity Fiserv Inc.
And Ellis is more bullish on the prospects for Coinbase, calling it “a one-of-a-kind, pure expression of the secular cryptocurrency trend,” offering an “increasingly attractive valuation” for investors willing to put up with uncertainty.