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Stock Pick of the Week

13 January 2022 Momentum Securities

THIS WEEK’S PICK: PayPal Holdings

About: PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers and serves as an electronic alternative to traditional paper methods such as checks and money orders.

Chris Napier, Momentum Securities Portfolio Manager for the KZN region, shares his insights.
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Transcription:

Good day! My stock pick this week is one of those companies that is as ingrained in the IoT as the likes of your Google, or your Meta platforms - your Facebook. Now whilst we know the easing of stimulus measures and the push by the US fed, to hike interest rate this year has already had an impact on growth stocks. I have chosen this company as is currently trading around 52 gross of the combination of both the weakness in growth stocks, as well as the company’s loans guidance around about 0.5 % low of the 2022 financial year.

However, recent news flow has been positive in my view, and I feel the pros far outweigh the cons, and this should filter through in the quarter's to come.

My pick is PayPal Holdings, 39.5 % of its all-time highs reached back in July last year. The company has expanded its offering into buy now and pay later, which saw a 400% volume increase on Black Friday alone.

This also stated the rumours of its purchase of Pinterest is not going ahead, which the market view was negative at the time. Now, once regulators have targeted BNPL offerings as well as the most recent announcement that all $600 transactions of PayPal will be reported to or need to be reported to the IRS. The IRS will have a tough time sifting through which transactions are business to customer and which are customer to customer and a rethink of this whole thing will need to take place before it can be implemented effectively.

Their tie-up with eBay came to an end, but through their subsidiary Venmo they have teamed up with Amazon to allow Amazon customers to use Venmo to check out. Venmo has 18 million users in the US alone. This is to compliment PayPal's 400 million users globally, with a sales growth still in the high teens. If history runs its PayPal price-earnings, 40 is a good entry point when you compare it to its past history, and when you compare that to the valuations of their competitors, the story improves even further.

I am looking at purchasing a position in two tranches with the first being around current levels. However, I will be mindful of the following two price levels going forward, 172 to the downside and around 220 to the upside. Look out for any outlook improvements in their earnings on the third of February.

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