Searing inflation and rising interest rates have sent the market tumbling, and Wall Street is playing it safe by selling attractive new stocks in favor of proven ones. But it can create opportunities for the bold and patient investor, and the financial technology, or fintech, space is teeming with opportunity.
You don’t even need a ton of money to give yourself long-term upside exposure — you can buy shares of these three potential rising stars for less than $100.
1. Assets received
Reached (UPST -3.78%) uses artificial intelligence to generate a credit score that potentially replaces Just Isaac‘s FICO score and determines the creditworthiness of a borrower. It uses this score to originate personal and auto loans, then refer those loans to one of the banks or credit unions in its referral network for a fee, which is how Upstart generates most of its revenue.
Based on Upstart’s declining share price, some investors may worry that its AI will fail in a recession as more borrowers have the potential to default on their loans. It’s a valid concern, and investors should closely monitor Upstart’s quarterly updates to see how its loans are doing.
However, more lenders are partnering with Upstart every quarter (it totaled 57 in Q1 2022), and 11 of those partners have dropped FICO scores from their borrower requirements. These growing numbers could indicate that lenders trust Upstart’s technology.
The company has just under $1 billion in cash on its balance sheet, which should provide financial stability during a recession. This also implies that the stock’s current market cap of $2.1 billion is cheap – you get almost half the value of the company in cash! The price-to-sales (P/S) ratio is only 2.3, which could be a bargain in hindsight.
At a price of around $25 per share, you would be left with $75 of the original $100.
2. Affirm assets
The lending service commonly known as buy now, pay later (BNPL) became mainstream in 2021, and To affirm (AFRM 4.95%) is one of the industry leaders BNPL. Buyers can use Affirm to shop online and receive instant loan offers for anything they want to buy. Affirm uses AI to make lending decisions right at the point of sale.
Consumers benefit from Affirm because it does not charge late fees and often does not charge interest. Merchants benefit because these simple and flexible loans encourage shoppers to continue shopping. Affirm makes money from all the interest it charges users and the fees it collects from its partner merchants.
Affirm has been laser-focused on expanding its ecosystem, attracting as many buyers and merchants to its platform as possible. It is partnered with several retail powerhouses including Amazon, Shopify, walmartand Target. Meanwhile, there are now 12.7 million active users purchasing through Affirm. The company is also launching a debit card that could help it continue to grow its user base.
The company has loans on its balance sheet, which is likely the reason for the stock’s dramatic drop, especially with a possible recession looming. However, Affirm is sitting on more than $3 billion in cash and cash equivalents, while just over 2% of loans are more than 30 days past due. Investors should watch quarterly results to make sure losses don’t pile up.
Investors receive about half of Affirm’s $6 billion market capitalization in cash, and the stock trades at a P/S of just 4.6. Is Affirm guaranteed success? Of course not, but the benefit could be substantial if things work out.
At a price of around $21 per share, you would be left with $54 of the original $100.
3. DLocal Limited
E-commerce has become a massive but fragmented industry over the past two decades. The foreign payment conundrum may deter buyers and merchants from using e-commerce outside of domestic markets. DLocal Limitedit is (DLO -4.45%) The Application Programming Interface (API) allows merchants to receive and send money and settle transactions in emerging markets.
DLocal specializes in emerging markets such as Africa, the Middle East, Latin America and Asia. It currently works with over 400 merchants and supports over 700 local payment methods. The annual volume of payments DLocal processed grew from $1.3 billion in 2019 to $6.0 billion in 2021.
Wall Street could be concerned about potential competition from companies like the Dutch payments giant Adyen. Still, DLocal management estimates that the total volume of payments in the markets it targets could exceed $1 trillion by 2024, so there seems to be room for several winners.
DLocal has $410 million in cash and has generated $87 million in net income over the past year, so the company is financially stable despite the stock price falling more than 60% relative to its peak. Like most tech stocks, DLocal shares have taken a hit in this market. You might not call the stock cheap at a P/S of 28, but the stock was at a P/S of 120 last fall, so the valuation looks more reasonable today.
At a price of around $25 per share, you would have $29 left over to buy a second share of any of these three stocks if you wanted.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Justin Pope holds positions at Affirm Holdings, Inc. and Upstart Holdings, Inc. The Motley Fool holds positions and recommends Adyen NV, Affirm Holdings, Inc., Amazon, Shopify, Target, and Upstart Holdings, Inc. The Motley Fool recommends Adyen and recommends the following options: Shopify January 2023 $1140 Long Call and Shopify January 2023 Short Call $1160. The Motley Fool has a disclosure policy.