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Today’s investors are barraged with technology-driven investment tools. Everything from a standard online trading platform to completely automated, decision-making robo-advisors is at our fingertips.
Known collectively as Fintech, these revolutionary changes have deeply altered our relationship with the financial markets.
The stock market had grown tremendously since the days when investors had to phone in orders to brokers who in turn called the stock exchange to execute orders. Things are continuing to change and change fast for individual investors. And whenever there is change there are many opportunities for profit.
And this is especially true of the fintech revolution.
Early Fintech Advances
Fintech can be traced back to the early 1960s with the advent of the Quotron system on brokers’ desks. Quotron was the first electronic system for distributing stock quotes in real time.
In 1966, the global telex network was launched with the goal of creating the backbone for future international financial technology. Later on, the Clearing House Interbank Payments System was founded to allow large global banks the ability to convey and settle payments in greenbacks.
While it feels like forever, it has only been since 1983 that E-Trade made electronic trading accessible to everyone. It took banks until 1998 to catch up with electronic banking services.
Consumers Become Producers
In the 2000s, the revolution went into high gear. With the advent of the cloud and literally thousands of app designers and programmers, official banks are no longer needed to exchange money. Capital flows seamlessly between consumers and businesses, and between consumers and consumers via a touch of a button on the ubiquitous smartphone.
Consumers becoming producers was enabled thanks to the sharing economy powered by Fintech. Airbnb, Uber, and the host of other startups have revolutionized nearly every industry.
The next, direct financial step is being made with the advent of robo-advisors. These programs use algorithmic programming to build portfolios and provide customized investment advice with improved precision. Companies like Betterment and Wealthfront have raised billions with this concept over the last few years.
While it remains to be seen if these robo-advisors can outperform the market over the long term or are simply a gimmick, the good news is savvy investors can profit from the fintech revolution itself.
There is an entire ecosystem of fintech companies that one can invest directly into. The best stocks to buy now in the space are a mixture of startups and established companies that have launched fintech or robo-advisor divisions.
Here are my 2 top picks in the space:
1. TD Ameritrade (NYSE: AMTD)
This popular online brokerage recently launched a product named Essential Portfolios. This robo-advisor provides automated portfolio management at a low-cost with a small minimum investment, and provides access to five goal-oriented ETF portfolios. The advisor utilizes Morningstar Investment Management to choose ETFs based on risk tolerance and investor goals.
The company posted strong first-quarter numbers, with increases in both cash deposits and number of trades conducted by its customers. Earnings came in at $0.41 per diluted share, up 5% year-over-year, on net income of $216 million. Net new client assets were approximately $19 billion, representing an annualized growth rate of 10%.
The most bullish number is the increase in trades per day. The average client trades per day hit 487,000, up 11% year-over-year. This not only shows increased public interest in the stock market, but it also reflects that investors are increasingly choosing TD Ameritrade for their financial transactions. The improved business led to record net revenues of $859 million, 57% of which were asset-based.
The acquisition of competitor ScottTrade improves the bullish outlook for the company. Commenting on the successful quarter, Tim Hockey, president, and chief executive officer said, “It was a quarter of significant change. We announced plans to acquire Scottrade — the largest transaction in our history. The Federal Reserve raised interest rates for the first time in 12 months, and we witnessed a historic election, the outcome of which brought retail investors back to the markets.”
2. Vantiv (NYSE: VNTV)
This under-the-radar fintech giant acts as a credit card payment processor for eight of the largest 25 U.S.-based retailers, as well as over 400,000 small- to medium-size companies.
Shares have been in a steady uptrend and are trading higher by 27% over the last year. The company delivered strong results in 2016, with total revenue increasing 13% to $3,579 million. Net revenue also increased 13% to $1,905 million. On a GAAP basis, net income per diluted share increased 39% to $1.32 in 2016.
What I find most bullish is that the company is projecting continued net revenue growth of 8% to 9% and 13% to 16% net income growth in the first quarter of 2017.
Vantiv is on a steady upward trajectory both fundamentally and technically, making it one of the best stocks to buy now in fintech.
Risks To Consider: The new era of fintech remains in its infancy. As in all high tech, disruptions can and do happen as new, cutting edge companies continually enter the sector. Always use stops and remain alert to changes in the underlying sector.
Action To Take: Investing in some of the best stocks to buy now in the fintech sector should pay off handsomely in the long run.