5 Best Digital Payments Stocks To Buy Now

In this article, we discuss 5 best digital payments stocks to buy now. If you want to see more stocks in this selection, check out 11 Best Digital Payments Stocks To Buy Now. 

5. Block, Inc. (NYSE:SQ)

Number of Hedge Fund Holders: 75

Block, Inc. (NYSE:SQ) is a California-based company that creates tools enabling sellers to accept card payments, reporting and analytics, and next-day settlement. Block, Inc. (NYSE:SQ) is one of the best digital money stocks to invest in. On November 3, Block, Inc. (NYSE:SQ) reported a Q3 non-GAAP EPS of $0.42 and a revenue of $4.52 billion, outperforming Wall Street forecasts by $0.19 and $50 million, respectively. Revenue over the period climbed 17.7% year-over-year. 

On November 16, Mizuho analyst Dan Dolev raised the price target on Block, Inc. (NYSE:SQ) to $69 from $57 and maintained a Neutral rating on the shares. The analyst said payday lending is largely meaningful to Cash App gross profit growth. Payday lending is a short-term boost to inflows, but it may ultimately pressure Block, Inc. (NYSE:SQ)’s multiple as delinquencies across consumer lending continue to grow, the analyst wrote in a research note. 

According to Insider Monkey’s Q3 data, 75 hedge funds were bullish on Block, Inc. (NYSE:SQ), compared to 72 funds in the prior quarter. Cathie Wood’s ARK Investment Management is the largest position holder in the company, with 9.2 million shares worth $505.45 million. 

In its Q2 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Block, Inc. (NYSE:SQ) was one of them. Here is what the fund said:

“Block, Inc. (NYSE:SQ) provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals. Shares fell due to mixed quarterly results with more modest growth in the Seller business offsetting strength in Cash App. While integration of recently acquired Afterpay is progressing well and credit metrics remain healthy, the buy-now-pay-later business slowed due to greater competitive intensity. We continue to own the stock due to Block’s long runway for growth, sustainable competitive advantages, and unique corporate culture.”

Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund include Wells Fargo.”

4. MercadoLibre, Inc. (NASDAQ:MELI)

Number of Hedge Fund Holders: 81

MercadoLibre, Inc. (NASDAQ:MELI) operates online commerce platforms in Latin America. It offers the Mercado Pago FinTech platform, a financial technology platform that facilitates transactions at its marketplaces, allowing its users to send and receive payments online, as well as transfer money through websites or apps. MercadoLibre, Inc. (NASDAQ:MELI) is one of the best digital money stocks to monitor. 

On November 3, Citi analyst Joao Pedro Soares maintained a Buy rating on MercadoLibre, Inc. (NASDAQ:MELI) but lowered the price target on MercadoLibre to $1,050 from $1,150 ahead of the Q3 results. The analyst continues to see MercadoLibre as the “best vehicle to be positioned in secular e-commerce growth” in Latin America. His only concern is the rising competition with Amazon in the long-run.

According to Insider Monkey’s Q3 data, 81 hedge funds were bullish on MercadoLibre, Inc. (NASDAQ:MELI), compared to 68 funds in the earlier quarter. David Blood and Al Gore’s Generation Investment Management is the largest stakeholder of the company, with 683,206 shares worth $565.5 million. 

SaltLight Capital made the following comment about MercadoLibre, Inc. (NASDAQ:MELI) in its Q3 2022 investor letter:

“Despite the economic slowdown in developed markets, our Latin American investment in MercadoLibre, Inc. (NASDAQ:MELI) had another outstanding third quarter growing revenues by 61% on a USD FX-neutral basis (GMV +32% FXN). Despite this strong growth, it also managed to expand operating profit margins to 11% (compare this to Amazon which is struggling to make a profit in its retail business).

LatAm’s e-commerce penetration is still very low compared to Asia and developed markets. MELI is mostly a marketplace but has also adopted models from elsewhere. In the recent past, it has built 3rd party seller infrastructure that has made Amazon so successful, and it is also heavily investing in a mobile based fintech infrastructure very similar to ANT Group in China. After only launching a couple of quarters ago, their advertising business is already at 1.3% of Gross Merchandise Value.”

3. PayPal Holdings, Inc. (NASDAQ:PYPL)

Number of Hedge Fund Holders: 126

PayPal Holdings, Inc. (NASDAQ:PYPL) is a California-based company operating a technology platform that enables digital payments for merchants and consumers worldwide. It provides payment solutions under the PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy names. On November 3, PayPal Holdings, Inc. (NASDAQ:PYPL) reported a Q3 non-GAAP EPS of $1.08 and a revenue of $6.85 billion, topping Wall Street estimates by $0.12 and $30 million, respectively. The company expects FY23 non-GAAP EPS growth of at least 15%.

On November 7, DA Davidson analyst Christopher Brendler reaffirmed a Buy rating on PayPal Holdings, Inc. (NASDAQ:PYPL) but cut the price target on the shares to $110 from $120. PayPal Holdings, Inc. (NASDAQ:PYPL)’s Q3 results were a “step back” after a positive performance in Q2 as multiple primary underlying metrics deteriorated, the analyst told investors. However, he added that PayPal Holdings, Inc. (NASDAQ:PYPL) has “made real progress” on expenses and “credit looks great”, with buy-now-pay-later business outperforming.

According to Insider Monkey’s data, 126 hedge funds were long PayPal Holdings, Inc. (NASDAQ:PYPL) at the end of the third quarter of 2022, compared to 97 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the biggest stakeholder of the company, with 17.6 million shares worth $1.5 billion.  

Here is what RiverPark Large Growth Fund has to say about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2022 investor letter:

“PayPal, announced better-than-expected 2Q results, positive guidance (including more than $1.3 billion of 2023 cost savings leading to operating margin expansion), a $15 billion stock repurchase program, and the appointment of Blake Jorgensen as CFO, who was previously the well-regarded CFO at Electronic Arts. The company reported 9% revenue growth, in-line with guidance, and $0.93 EPS, exceeding guidance due to robust operating leverage. Management narrowed its 2022 revenue guidance from 11%-13% growth to about 11% growth due to the macro environment but raised its EPS guidance due to greater operating margin leverage and share buybacks. The stock also reacted to the news that activist investor Elliott Management had taken a stake in the company. PYPL operates at significantly lower margins than its payment competitors Visa and Mastercard, and sources suggest that Elliott intends, among other things, to push for the company to improve its margins and drive higher cash flow growth in the near term.

PayPal provides direct exposure to the secular growth in ecommerce-driven digital payments as it is the most accepted digital wallet on-line. More than 3/4 of the 1,500 largest online retailers across North America and Europe accept PayPal, which is almost triple the acceptance of Apple Pay, the number two digital wallet. PayPal is also a key beneficiary of the current dramatic shift in consumer buying habits brought on by the pandemic, as well as the relatively newer consumer-to-consumer payment trends through its Venmo peer-to-peer (P2P) payment service. With a 2Q non-GAAP operating margin of 19%, PYPL also has significant margin expansion potential given that competitors Adyen, Visa and Mastercard have 50%-65% operating margins. We believe the combination of the secular growth of eCommerce and P2P payments, along with expanding operating leverage and the strategic use of the company’s significant and growing cash balance should fuel a mid-20% earnings growth rate over the next five years. This, to us, presents an excellent risk/reward profile given that PYPL trades at a modest premium to the market multiple and a 6% 2023 FCF yield.”

2. Mastercard Incorporated (NYSE:MA)

Number of Hedge Fund Holders: 146

Mastercard Incorporated (NYSE:MA) is one of the premier digital money stocks to invest in. On October 27, Mastercard Incorporated (NYSE:MA) reported a Q3 non-GAAP EPS of $2.68 and a revenue of $5.8 billion, outperforming Wall Street estimates by $0.10 and $140 million, respectively. Net revenue increased 15%, or 23% on a constant currency basis, which includes a 1 percentage point benefit from acquisitions. 

On November 1, Mizuho analyst Dan Dolev maintained a Buy recommendation on Mastercard Incorporated (NYSE:MA) but lowered the firm’s price target on the shares to $380 from $385 following the Q3 results. The analyst raised 2022 estimates but trimmed outer-year expectations.

According to the third quarter database of Insider Monkey, Mastercard Incorporated (NYSE:MA) was part of 146 public stock portfolios, compared to 137 in the preceding quarter. Charles Akre’s Akre Capital Management is the largest position holder in the company, with nearly 6 million shares worth $1.6 billion. 

Here is what L1 Capital International specifically said about Mastercard Incorporated (NYSE:MA) in its Q2 2022 investor letter:

“Growth in electronic payments, the continued shift away from cash and cheques, and the provision of additional services such as fraud identification and prevention continue to power Mastercard Incorporated (NYSE:MA)’s growth (Figure 14). In person cross-border transactions are recovering alongside normalization of travel.

Mastercard and Visa (we have invested in both) continue to dominate the electronic payments industry outside of China, utilizing their own multi-faceted networks as well as Government and third-party payments infrastructure to facilitate transactions. Another perfect example of a ‘Noah’s Ark’ industry structure.

Regulation, technological disruption and disintermediation, and geopolitical constraints are perennial issues for consideration, but Mastercard (and Visa) management have repeatedly demonstrated their ability to manage these issues…” (Click here to read the full text)

1. Visa Inc. (NYSE:V)

Number of Hedge Fund Holders: 165

Visa Inc. (NYSE:V) is one of the best digital money stocks favored by elite hedge funds. On November 25, Visa Inc. (NYSE:V) announced that its U.S. payments volume in November rose 9% from a year ago, even after the company concluded its operations in Russia in March 2022. Global processed transactions increased 10% year-over-year and were 140% of the 2019 levels in November.

On October 27, investment advisory Barclays maintained an Overweight rating on Visa Inc. (NYSE:V) but lowered the firm’s price target on the shares to $264 from $271 following the Q3 results. Analyst Ramsey El-Assal issued the ratings update.

According to Insider Monkey’s data, 165 hedge funds were bullish on Visa Inc. (NYSE:V) at the end of September 2022, compared to 166 funds in the prior quarter. Chris Hohn’s TCI Fund Management is the largest position holder in the company, with approximately 20 million shares worth $3.5 billion. 

Baron Funds made the following comment about Visa Inc. (NYSE:V) in its Q3 2022 investor letter:

“Shares of global payment network Visa Inc. (NYSE:V) fell despite reporting financial results that beat Street forecasts and sustained volume growth in recent months. Revenue grew 19% and EPS grew 33% in the most recent quarter, and double-digit payment volume growth persisted through August. Share price weakness represented a reversal of outperformance earlier this year and may be due to foreign exchange headwinds and concerns about a potential weakening of consumer spending. We continue to own the stock due to Visa’s long runway for growth and significant competitive advantages.”

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