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3 No-Brainer Fintech Stocks to Buy With $300 During This Market Sell-Off

The S&P 500 is officially in a bear market — down by more than 20% from its peak. Such downturns can be unnerving, but they do present long-term investors with some excellent opportunities to buy shares of companies at fractions of their former prices. Since 1950, there have been 11 bear markets in the S&P 500; on average, they’ve lasted about one year. While no one knows how long any particular bear market will last, at some point, so far, they’ve all ended, and new bull markets have begun.

While the sell-off could deepen from here, this could be a good time to nibble on some beaten-down fintech stocks. Here are three you can add for less than $300 combined.

Image source: Getty Images.

1. LendingClub

LendingClub (NYSE: LC) provides personal loans to borrowers, many of whom are looking to roll up their high-interest credit card debts and other loans into a single lower-rate loan. The company was founded in 2006 as a peer-to-peer lending platform and has 15 years of data that it feeds into its artificial intelligence algorithms to help it make smarter loans. 

LendingClub acquired Radius Bancorp in February 2021, which allowed the company to start holding loans on its books. Under this new model, LendingClub doesn’t need to rely solely on making loans to make money. Owning Radius Bancorp allows LendingClub to take in deposits and hold loans, collecting interest income from them over time. CEO Scott Sanborn told investors that holding these loans is three times more profitable for the company in the long run.  

The moves have already paid off. The company collected $100 million in net interest income in the first quarter, up 440% from the previous year and 20% from the fourth quarter. During its first-quarter earnings call, management projected that second-quarter revenue would grow by between 44% and 49% year over year, and net income would increase by between 327% and 380%.

One concern investors may have about LendingClub is how it would fare in a slowing economy. LendingClub looks to hold 20% to 25% of the loans it makes — only the highest-quality “prime” loans — while selling the rest. That focus on high-quality loans could cushion the company from a rise in delinquencies, which would likely be more pronounced among borrowers with lower credit scores.

The remainder of LendingClub’s loans are packaged together and sold to investors. Rising interest rates could result in the company reducing the sale price of these loans to satisfy investors’ yield expectations. This, along with a slowing economy, would reduce LendingClub’s revenue from loan originations — which is why collecting interest income was an essential pivot in the business. By having a banking charter, LendingClub has the option to hold more of these loans on its books.

LendingClub’s business pivot has led to strong growth in the last year. However, investors may be in wait-and-see mode to see if this growth can continue, as the stock traded at a one-year forward price-to-earnings ratio of just under 8 at Tuesday’s close.  

2. Tradeweb Markets

Tradeweb Markets (NASDAQ: TW) provides the big players on Wall Street, like hedge funds and central banks, with a platform to trade various assets. 

Founded in 1996, Tradeweb initially helped bring U.S. Treasuries trading into the modern era. More customers have been turning to Tradeweb’s platform in recent years, and since 2016, its volume share of the U.S. Treasuries market has grown from 7.5% to 19.6%. The company has also increased its share of corporate credit markets, equities, and money markets — with its volume growth outpacing the total market volume growth since 2015.

Image source: Tradeweb Markets.

Higher market volatility benefits the company because it tends to bring increased trading volume. This was the case in the first quarter, when Tradeweb’s total trading volume hit a new high, with revenue growing by 14% and net income by 22%.  

While Tradweb benefits from increased volatility across assets, it’s cautious about volatility that becomes so high that customers could negotiate trades directly with one another, foregoing its platform altogether. That, and if economic conditions were to deteriorate, its clients could renegotiate the fees Tradeweb charges which would put pressure on its profit margins. 

Tradeweb’s stock is down 31% year to date, but ultimately, it stands to benefit from volatility in interest rates — and looks like another no-brainer stock given its growing market share.

3. Live Oak Bancshares

Live Oak Bancshares (NASDAQ: LOB) is the largest lender through the Small Business Administration (SBA), with $724 billion in loans approved during the first quarter of 2022 — nearly 50% more than the second-largest lender.  

Live Oak’s dominance in small-business lending comes from its years of experience and a technological advantage — it runs its core banking operations through Finxact’s banking-as-a-service (BaaS) platform so it can roll out digital products quicker. Live Oak was an early investor in Finxact, and it made $120 million when the fintech was bought out earlier this year by Fiserv. Finxact presents Live Oak with a major opportunity in BaaS, an increasingly popular technology that lets banks work easily with third-party app developers. It has modernized Live Oak’s platform, a significant reason Live Oak was able to handle new requests quickly in the Paycheck Protection Program (PPP).

According to Allied Market Research, the global BaaS market was $2.4 billion in 2020 and is projected to grow at a 17% compound annual growth rate by 2030. Huntley Garriott, president of Live Oak Bank, sees BaaS as a key component of the bank’s next growth phase in serving small businesses. Through this technology, the bank can integrate its banking products directly into software its customers use, like practice management, billing, and inventory, and looks to begin this integration in the second half of this year.

The bank has traded at a higher valuation compared to its peers, seeing an average price-to-earnings ratio (P/E) of 25 last year. Live Oak’s valuation has been cut drastically, with its stock down 61% this year as of Tuesday’s close. Now Live Oak’s P/E ratio trades is a much more reasonable 9.5, in line with banking peers like JPMorgan Chase at 8.6 and Wells Fargo at 8.1.

Live Oak Bank faces short-term headwinds from a possible slowing economy, which could cause small businesses to tighten their belts. However, with its cheaper valuation, expertise in serving small businesses, and investments in modernizing its platform, this fintech bank could be another no-brainer stock to add today and hold for the next decade.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen has positions in LendingClub. The Motley Fool has positions in and recommends Live Oak Bancshares. The Motley Fool has a disclosure policy.

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