With January already halfway over, 2019 is fully in our rearview mirror and most of us are back to our usual routines. One of the most important things we should be doing? Finding great investments to help build wealth. And a great place to look is in the financial sector. There is a clear trend that technology is playing an ever-increasing role in finance around the world, and wealth is expanding.
A watershed year ahead for Square
Merchant solutions company Square has made a name for itself catering to smaller businesses, making it possible for companies of any size to accept credit card payments without spending a fortune on equipment and giving half their profits to the payment processor. Square has also brought a litany of other merchant solutions to a growing base of customers beyond just payments.
This has attracted not only small companies to Square, but also a growing list of big ones. In its most recently reported quarter, gross payment volume from sellers who do more than $500,000 per year increased 44%. That's substantially higher than the 25% growth in GPV overall.
Put it all together and Square's popularity is expanding beyond just small businesses, and its growing portfolio of services should mean continued expansion of its customer base. 2020 is an excellent year to make Square part of your portfolio.
Double-digit growth at a single-digit valuation
Over the past five years, Axos Financial, the online financial services and banking provider, has grown earnings per share almost 110%. Over the past decade, earnings per share are up nearly 370%, and investors have enjoyed almost 1,100% in total returns. More recently, however, Axos' earnings took a bit of a hit following a one-time loss at a new subsidiary in 2019, and shares are off more than 31% from their all-time high.
But while other investors look away from Axos over fears about its ability to continue growing and worries about interest rates and the economy's ability to keep banks profitable, I see a great opportunity to buy.
Since taking over in the midst of the Great Recession more than a decade ago, CEO Greg Garrabrants has done an incredible job leading Axos. He started by navigating through the financial crisis, when the company was little more than a jumbo loan mortgage lender in Southern California, and has since built it into a diversified financial services company that generates revenue from a half dozen different businesses beyond residential real estate.
Even with a decade of incredible growth behind it, Axos is still quite small, just passing $10 billion in total assets in 2019. With Garrabrants running the show and a solid management team supporting him, investors should be able to count on plenty more years of earnings growing at a double-digit rate.
And right now, you can buy this high-quality business at value prices. Shares trade for less than 12 times trailing earnings and 10 times expected 2020 earnings, while its price-to-book value is less than 1.7 times.
Grow your wealth on this bank for the wealthy
The Bank of N.T. Butterfield & Sons doesn't do business on Main Street U.S.A., but I'm guessing you probably knew that by the name. Butterfield does business in the Caymans, Bermuda, and the Channel Islands, three well-established areas for offshore banking for the world's ultrarich.
Even after 160 years in operation, Butterfield is relatively small, with about $14 billion in total assets, and has been a public company for a little more than five years, more reasons why it's not well known.
But if you're looking to profit from the trends driving the way the world does business and banks, it's time to get to know Butterfield.
Where to start? How about with Butterfield's profitability. In short, it's very profitable for a bank, with better than 1.5% return on assets and return on equity of more than 20% for the past two years. If you're not familiar with investing in bank stocks, most banks aim for 1% and 10%, respectively, on these metrics. Butterfield blows that out of the water.
Moreover, I expect its steady growth to continue, having recently expanded its presence and its existing customer base on the Channel Islands near Europe. That's particularly true as the global elite class grows in population and more high-wealth individuals take advantage of keeping assets in banks like Butterfield.
Lastly, like Axos (and plenty of other bank stocks now), Butterfield stock is cheap. Shares trade for 10.6 times trailing earnings and about two times book value, an absolute bargain for a bank this profitable. Oh, and did we mention it pays a dividend that yields almost 5% at recent prices?
Cheap, solid growth and a high yield to boot? The market's decision to eschew banks has created an excellent opportunity to buy this overlooked business at bargain prices.