Please ensure Javascript is enabled for purposes of website accessibility

2 Fintech Stocks You Can Buy and Hold for the Next Decade

By Dave Kovaleski - Jan 26, 2021 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These two stocks are at the forefront of the cashless trend.

One of the greatest attributes an investor can have is patience. Patience allows you to ride out the short-term volatility of the stock market and realize long-term returns. Think about the investors who bailed on Amazon, or Apple, or Netflix early on due to losses that may have felt uncomfortable at the time. They surely wish they had a time machine so they could go back for a do-over.

Here are two financial technology stocks (or fintechs) that you can feel comfortable buying and holding for the next decade or more: PayPal Holdings (PYPL -3.22%) and Square (SQ -3.22%).

PayPal: A general in the war on cash

Digital and mobile payments company PayPal is coming off its best year as a public company, returning 116% in 2020 and expanding its market lead in the online payments space. But there is far more room for PayPal to run as it continues to strengthen and add capabilities to thrive over the next decade or more and as the trend away from cash to digital payments accelerates. 

A woman at a desk with a phone in one hand, a document in another, with a laptop on the table.

Image source: Getty Images.

PayPal added 15.2 million net new accounts in the third quarter, bringing its total to 361 million accounts, which is up 22% year over year. It did $4 billion in payment transactions, up 30%, and $247 billion in total payment volume, up 38%. Its mobile app Venmo, which allows people to send and receive money, saw a 61% year-over-year spike in payment volume to $44 billion. Venmo should be a cash cow going forward in the shift to mobile payments. Previously, it was only for person-to-person transaction, but now customers can use Venmo for merchant transactions. In addition, they can use Venmo to buy and sell bitcoin and cryptocurrencies. Moreover, PayPal has begun to roll out service where customers can pay via QR codes on their phones.

PayPal has been an earnings machine since it spun off from eBay in 2015 with consistent 15% to 20% annual revenue growth over the past few years. Plus, the company has an increasing operating margin of 17.9% in the third quarter and generated $720 million in cash flow from operations in the third quarter.

Year-to-date through the third quarter it had $4 billion in free cash flow, up 43% year over year. With these strong financials, its earnings power, and its status as a market leader in a growing industry, PayPal is going to have a long, profitable run.

Square has built an ecosystem of buyers and sellers

Square is another fintech that will reward investors for the next 10 years or more. Square started out as a company that made credit card readers for smartphones and tablets, but it has branched out into other areas of mobile payments, most notably through its Cash App and Cash Card.

The Cash App saw meteoric growth last year, generating about $2.1 billion, or about 70% of Square's revenue, in the third quarter. Cash App revenue jumped 574% year over year in the quarter as more people turned to cashless payments during the coronavirus pandemic and the number of active users climbed 25% to 30 million. The growth of the Cash App isn't likely to subside with the tailwinds of the cashless trend pushing it forward, accelerated by the pandemic and social distancing.

The Cash App is more than just a way to send and receive money; it also offers a platform to invest in stocks and bitcoin and is a bank of sorts as users can maintain an account and get direct deposit payments. It can also be linked to the Cash Card, which can be used to pay for goods and services with the Cash App balance.

But what sets Square apart is that it also serves sellers through its various merchant services, like payroll, point-of-sale register, and loans, for Square customers only, through its Square Capital arm. Now, Square is planning to launch a bank, having received federal approval for an industrial loan company (ILC) bank charter, which would allow it to offer loans beyond its current sellers to businesses and individuals. This will allow to broaden its footprint and expand its user base for its other services.

Square's stock soared 248% in 2020 and has a very high valuation as a result. It may snap back in the short term, but you can expect Square to be a major player over the long term.

These two fintechs are at the forefront of the cashless trend and would be great additions to any long-term portfolio.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$77.18 (-3.22%) $-2.57
Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$177.19 (-7.02%) $-13.37
Apple Inc. Stock Quote
Apple Inc.
AAPL
$140.82 (-5.64%) $-8.42
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,142.25 (-7.16%) $-165.12
eBay Inc. Stock Quote
eBay Inc.
EBAY
$44.94 (-4.22%) $-1.98
Block, Inc. Stock Quote
Block, Inc.
SQ
$82.06 (-3.22%) $-2.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
328%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.