Mega-cap technology stocks have dominated, not only in 2020, but over the past decade. While many feel that this is the sector to stay with going forward, historical data says that may not be the case. In fact, the team at UBS recently noted that since 1973, if a U.S. equity sector was a top-two performer over the previous 10 years, it had only an 8% chance of staying there over the subsequent 10 years, as well as a 25% chance of falling into the bottom two. While technology may not drop that far, it makes sense to look at what could be hot going forward.
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One area the UBS team likes for investors to position in now, for what they term as the “next big thing,” is financial technology, or fintech. They noted this when discussing the segment recently:
With double-digit annual earnings growth expected over the next decade, we see fintech as one of the fastest-growing industries globally. Investors will be best rewarded by investing in a diversified way, in our view, with a focus on payment industry leaders, technology companies launching disruptive fintech services and incumbent financial companies with a clear fintech strategy. Companies that are able to create platforms with network effects around emerging technologies like AI, blockchain and analytics are also potential winners.
We found four that not only are suggested by the UBS team for exposure and rated Buy or Neutral, but that look like solid 2021 ideas. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Capital One
When you are asked, “What’s in your wallet?” you can bet they are talking about this top company. Capital One Financial Corp. (NYSE: COF | COF Price Prediction) is a diversified financial services company that offers a broad array of financial products and services to consumers, small businesses and commercial clients, including non-interest-bearing and interest-bearing deposits, such as checking accounts, money market deposit accounts, negotiable order of withdrawals, savings deposits and time deposits.
The bank also provides credit card loans; auto, home and retail banking loans; and commercial and multifamily real estate, commercial and industrial, and small-ticket commercial real estate loans. In addition, the company offers credit and debit card products; online direct banking services; and treasury management and depository services.
It offers its services through the internet and mobile banking, as well as through ATMs and branches located in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia.
Investors receive just a 0.36% dividend. The UBS price target for the Buy-rated shares is $108. That compares with a $120 Wall Street consensus target and a Thursday close of $114.40 per share for Capital One Financial stock.
Discover Financial
This is another top financial stock with very wide brand recognition. Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. The bank operates as a direct banking and payment services company in the United States.
Discover Financial operates in two segments. The Direct Banking segment offers Discover-branded credit cards to individuals. Other consumer products and services include private student loans, personal loans, home equity loans and other consumer lending, as well as deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts, and individual retirement arrangement certificates of deposit.
The Payment Services segment operates the PULSE network, an automated teller machine, debit and electronic funds transfer network. Its Diners Club International is a payments network that issues Diners Club branded charge cards and provides card acceptance services. The Discover Network processes transactions for Discover-branded credit and debit cards, as well as provides payment transaction processing and settlement services.
Shareholders receive a 1.79% dividend. The UBS team has a Buy rating and a $94 price target. The consensus target is $115. Discover Financial Services stock closed at $98.43 on Thursday.
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PayPal
This has long been a Wall Street favorite, and it continues to deliver solid results. PayPal Holdings Inc. (NASDAQ: PYPL) operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide.
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The company enables businesses of various sizes to accept payments from merchant websites, mobile devices and applications, as well as at offline retail locations through a range of payment solutions across its payments platform, including PayPal, PayPal Credit, Venmo and Braintree products.
PayPal’s platform allows customers to pay and get paid, withdraw funds to their bank accounts and hold balances in their PayPal accounts in various currencies.
Last year, when it reported third-quarter results, the company suggested it would be increasing its long-term growth rates when it updates the investment community in February 2021. Some Wall Street analysts feel that this illustrates that the company has confidence in several sustainable tailwinds, which should help improve the long-term outlook.
The UBS rating for the stock is Neutral, with a $203 price objective. The posted consensus figure is $222.37. PayPal stock closed on Thursday at $242.06.
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Visa
This top credit card issuer is becoming a huge leader in digital pay. Visa Inc. (NYSE: V) operates the world’s largest retail electronic payments network. The company provides processing services and payment product platforms, including consumer credit, debit, prepaid and commercial payments, that are offered under Visa and related brands.
According to Nielsen estimates, the company is the largest global credit network (as measured by volume) and the second-largest global debit network.
Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products.
Shareholders receive a 0.7% dividend. The UBS team rates the stock at Neutral, and the price target is $228. The consensus price target is higher at $234.23. Visa stock closed most recently at $201.86.
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Note that while not all of these stock picks are rated Buy, the UBS team has singled them out as top ideas in the fintech arena. The analysts feel it is an outstanding area to be in, not only in 2021, but going forward in years to come. It also seems likely UBS will boost price targets on them all sooner rather than later.
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