When Pfizer (NYSE: PFE) announced positive preliminary data from its COVID-19 vaccine trials, the financial sector was one of the biggest beneficiaries. But not all fintech stocks reacted in the same way.
In this Nov. 9 Fool Live video clip, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why Visa (NYSE:V) and Mastercard (NYSE:MA) soared on the positive vaccine news while Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) underperformed.
Jason Moser: We're going to pivot into a little bit of a discussion here on the quote, unquote, stay at home stocks, it's been a pretty unique phenomenon in 2020 I think in an interest and wanted to discuss, and I guess to kick that discussion off for me really, it's interesting to see this disparity between four particular stocks. If you look at Mastercard and Visa, for example, those are two stocks, the market is rewarding those companies today, there's stocks are doing very well. You look at Square and PayPal, those are companies where were the starts are actually selling off. I think it's just interesting to note that because we talked about this a lot where Mastercard and Visa. At the end of the day, these aren't banks, they are not lenders. These are networks, these are told boot models. They are really good proxies for the economy, for consumer spending. This is news that tells us that maybe the consumer is going to be able to come back a little bit more quickly, that things are going to start looking a little bit better, and then certainly understand why companies like Mastercard and Visa would be feeling some of the love today. But you flip that over, you look at PayPal and Square, PayPal and Square, smaller companies, a little bit more diverse in what they do and what they offer. I wonder perhaps some of the pullback on the stocks today is evaluation-related, they've both had really good years, but it seems like there would be something more to it. There's definitely a Square Capital side of the business. PayPal just chalked up a tremendous quarter and again, it's had a tremendous year thus far. I wonder if those pullbacks aren't just a little bit more evaluation-related than anything else.
Matt Frankel: You got to think that Visa and Mastercard, they make the bulk of their money from a percentage of their transactions they process. They don't care whether those transactions are in-person or online, but might be a little different in pricing in the fees they make, but rising consumer spending in any form is good for those companies. The fact that consumer spending is forecast to rise now, presumably because of a vaccine is good for Visa and Mastercard just in general, it doesn't matter if people are doing e-commerce, that they are going out to the malls, things like that. On PayPal, especially on the PayPal side of the equation. PayPal depends, it will that just depends with a benefit specifically from online spending. You saw during the third quarter, PayPal added more subscribers, I think than they ever have before. Or their payment volume increased by more than it ever has before. That's because people, for the most part, we're venturing out a little bit to stores, but for the most part, people are still staying home and shopping at home. That's why Amazon's sales are still through the roof and things like that. PayPal benefits when people are spending money online. Square, their core business is still in-person payment processing, but they are a fintech company. They are building out their online capabilities. The cash app definitely does better in a stay at home environment for the time being, at least with what it has to offer.
Jason Moser: Yeah.
Matt Frankel: Person-to-person money transfers aren't happening in person right now. People are using things like the cash out. Like you said, a lot of it could be valuation. These have been some of the best performing stocks. I think today's news could have triggered a rotation from those high-flying tech stocks into these value stocks that we've been talking about, the reads in the banks that are all of a sudden seeming like a better value from a risk reward perspective.
Jason Moser: Well, it's definitely understandable. I think we've all probably been looking at the market this year. I mean, at least the second half of the year, and thinking, it's nice to see doing so well, but yet valuations become more and more concern. But I think that you're right in that rotation point there, because we're not seeing necessarily any real discrimination here in the selling of a lot of these stay at home stocks. You look at Amazon and Netflix being down. I mean, obviously Wayfair. These businesses, they're not going to stop doing what they're doing. These are businesses that are still very much going to be serving consumers in good times and in bad. I think it's worth noting for investors. It's very easy to sit out there and talk about all the stay at home stock, fad or whatever you might call it as over. But let's try to look a little bit beyond that. The stay at home stock concept on its own, I think was a bit misguided and that was very short-term focused. Stay at home, is it going to last forever. We knew that back at the beginning of the year. I would argue if you're an analyst and you're surprised about what's happening today, you probably need to work on being a little bit of a better analysts. We've been seeing this and talking about it for a long time here. This isn't a surprise. To me, the surprise would be if folks were looking at a lot of these businesses and saying, "Oh now, their day in the sun is over, Amazon, Wayfair, Netflix." We don't need to worry about Etsy, another great example. It's not like people are going to stop shopping online, but there's a psychology behind some of this today.
Matt Frankel: For sure. No one thought this was going to last forever. The reason today's news is so significant is that it looks like it could be over sooner than we thought.
Jason Moser: Yeah
Matt Frankel: In fact just that this came sooner than we thought. We thought we were going to see some stage III trial data in November. But it looks like no one predicted a 90% effectiveness rating from the first vaccine candidate.
Jason Moser: That was really encouraging news.
Matt Frankel: I don't know about you, but I've been reading horror stories about the side effect potential of these vaccines. There was one article I read from some trial participants. I don't think it was advisors trial, where they said after the second shot, they were just on their bed for two days. It's not only 90% effective, but it's doing it without any significant side effects, which is just on both sides much better than anyone thought it would be. No one thought it will last forever. But this is really giving them hope that the pandemic could actually become a thing of the past before too long. We might not have to wear masks and I might be able to come see you at HQ before we thought it might happen.