There are many secular trends affecting the economy today. One of the most notable changes has been happening in the financial services industry.
Fintech businesses are gaining ground on traditional banks, and two stocks in this realm deserve a much closer look. Investing $500 in each of these companies would be a smart move.
Digital banking in Latin America
Nu Holdings (NYSE: NU) has Warren Buffett’s backing, after his company invested in Nu around the time it went public in December 2021. At its current price, investors can scoop up about 37 shares for $500.
This business is a banking powerhouse in Latin America, particularly its home country of Brazil. It operates online without physical branches, offering customers credit cards, checking and savings accounts, and insurance and brokerage products.
Nu continues to register fantastic top-line gains. Revenue soared 65% to $2.8 billion in the three-month period that ended June 30. This increase was driven by the addition of 6 million net new customers. The company launched in Mexico in 2019 and Colombia in 2020, and these markets should support even more growth in the years ahead.
It also helps that Latin America’s financial industry is largely undeveloped. Roughly 70% of its population remains unbanked or underbanked, according to news site Latin America Reports. As nations work to improve their economic conditions, Nu has a huge opportunity to bring on more customers.
Nu reported $487 million in net income in Q2, up 116% year over year. The fact that the bottom line is rising quicker than revenue is a clear sign of a scalable business model.
On the surface, Nu doesn’t look that compelling from a pure valuation perspective. The shares trade at a forward price-to-earnings ratio of 33 today. That represents a 38% premium to the S&P 500 index. But given the company’s incredible growth trajectory and strong profitability, investors should seriously consider adding the stock to their portfolios.
Digital banking in the U.S.
Investors should also consider SoFi Technologies (NASDAQ: SOFI), the dominant U.S.-based digital banking entity. The stock trades at about $7.60, so a $500 investment could get investors about 66 shares.
Like Nu, SoFi doesn’t operate any brick-and-mortar bank branches. Instead, it relies on its mobile app to serve customers. The business offers a wide range of financial services products, like bank accounts, credit cards, a brokerage platform, various loans, and insurance.
SoFi has seen its growth slow in a higher-rate environment, but the gains are still impressive. Revenue totaled $599 million in the second quarter. That figure was up 20% year over year. And the business continues bringing on customers at a rapid clip. In the past three years, the customer count, now at 8.8 million, has increased 200%.
SoFi has never been profitable, instead directing resources to growing as quickly as possible to take market share from incumbent banks. But now the business has turned the corner financially.
SoFi has reported three straight quarters of net income in accord with generally accepted accounting principles (GAAP), in line with management forecasts. And the good times are set to keep rolling. In 2026, executives believe the business will post earnings per share (EPS) of $0.68 (at the midpoint), compared to an expected $0.09 to $0.10 this year. And after that, the projection is for 20% to 25% annualized EPS growth.
That’s an outlook that can get any investor excited. It also helps that the stock currently trades about 70% below its peak price, a milestone it reached in February 2021. Putting $500 toward buying SoFi shares looks like a smart move.
Should you invest $1,000 in SoFi Technologies right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
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Publish date : 2024-10-02 02:46:00
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