10 Top Picks in Fintech and Finance for 2022

For years, newsletter advisors participating in our annual MoneyShow Top Picks report have chosen large Wall Street investment banks as their favorite investment ideas. In an interesting change, advisors this year are focused on smaller niche plays in private equity, business development, credit, mortgages, money transfers and fintech. Tim Plaehn, The Dividend Hunter Blue Owl Capital, Inc. started trading on the NYSE last May; it was formed with the combination of Owl Rock Capital Group, Dyal Capital Partners, and Altimar Acquisition Corporation. Altimar was a special purpose acquisition corporation (SPAC) that provided the shell company under which Owl Rock Capital and Dyal Capital combined to become a publicly traded corporation quickly. Dyal Capital invests in minority stakes in private equity companies. The combined company sports a $12 billion market cap. Blue Owl has big dividend plans. The company expects to have a 60% to 90% payout ratio. From the post-merger presentations, management stated that they seek to grow earnings and dividends by more than 18% compounded annually through 2023. The question is whether OWL can live up to its projections. It's a brand-new investment management company with only one quarter as a publicly traded stock under its belt. In October, the company agreed to purchase Chicago-based Oak Street Real Estate Capital for $950 million. In December, the company acquired Ascentium Group Limited to establish its physical presence in Hong Kong, strengthening its presence in the Asia-Pacific region. The investing public has not yet become aware of Blue Owl Capital, which is on its way to becoming a powerhouse asset manager. Don't be surprised if OWL posts a 100% total return in 2022. Mike Larson, Safe Money Report Ares Management Corp. -- which is rated B by our proprietary Weiss Ratings system -- is one of my favorite, high-yielding investment management plays; it is a top pick for more speculative investors. Unlike some of the larger asset managers, Ares focuses on alternative endeavors. It runs credit funds that help small- and mid-sized companies finance their operations, operates private equity funds to invest in growing firms, and manages capital earmarked for real estate investment. The firm managed $282 billion as of late 2021. Adjusted net income roughly doubled to $84.7 million, or 45 cents per share, from year-ago levels in the third quarter of 2021. Revenue climbed 53% to $448.3 million. Strong demand from investors looking to invest in private markets drove the results. Indeed, solid performance and a 57% surge in assets under management boosted management fees and related income by more than 50% YOY. Now let's talk yield. Ares Management paid out 47 cents per share in quarterly dividends as of late 2021. That was up more than 17% from a year earlier. It also worked out to an indicated yield of just over 2.3%. That's one reason why ARES graduated to the Buy Ratings tier in early 2021 after earning mostly Hold Ratings in 2020. It makes for a solid, somewhat speculative, pick for 2022. Adrian Day, Global Analyst Ares Capital is the largest, and one of the most conservative of the Business Development Companies (BDCs), which lend money to small and medium sized companies, and, like REITs, pass through most of their net income to shareholders. It continues to do well, recently reporting its second-highest earnings quarter in his history and a record quarter for originations. Loans on non-accrual remain less than 3%, at cost, almost back to pre-Covid levels. The company reports an increase in queries for loans, particularly from larger companies that see the advantages of private loans (as opposed to bank loans) in speedier and more certain closing as well as flexibility on conditions. Ares, being the largest BDC, is gaining share because of its size. The company continues to have significant spill-over income, currently equivalent to about three quarters worth of dividends. Though this does not have to be distributed, it will likely lead to a special distribution as it has paid in previous years. Even without these occasional special distributions, and despite very strong stock performance, the yield remains high, at 7.8%, and is now fully covered from net income once again after a brief and minor miss during the depths of Covid-19. The risk would be a long, severe recession which would affect the ability of its portfolio companies to service their debt. A stock market decline would also affect the valuations on its private companies and its ability to sell companies at today's high prices. Meanwhile, the balance sheet is very strong with a large cash reserve and total liquidity of over $7 billion. Ares is a solid holding for income-oriented investors. If you do not own the shares, you can buy for the above-average yield. Faris Sleem, The Bowser Report FlexShopper is a financial technology company that enables consumers utilizing its e-commerce marketplace to shop for brand name electronics, home furnishings and other durable goods on a lease-to-own (LTO) basis. It effects these transactions by first approving consumers through its proprietary, risk analytics-powered underwriting model; then collecting money from consumers under an LTO purchase agreement and funding the LTO transactions by paying merchants for their goods. FPAY offers its products through the FlexShopper website and holds several registered patents and patent applications on aspects of its LTO system. Customers that use FlexShopper for vLTO offerings make weekly payments debited via automatic ACH and can save money with attractive early payoff options. These products range from electronics to furniture and that just barely scratches the surface of the various offerings in the $25 billion vLTO market. FPAY is currently the only omni-channel LTP provider. The company recently announced that net revenues and fees for 3QFY21 were $30.9 million, up 25% from $24.6 million in the same period last year. Insiders have purchased 983,902 shares over the past year and have a history of heavy accumulation. This is clearly a vote of confidence in the company and its potential to keep dominating the LTO market. FPAY is a growth stock with a solid business model and confident insiders. It is a Top Pick for 2022 with the caveat that this is a high-risk idea. Todd Shaver, Bull Market Report After its IPO almost exactly a year ago, Upstart rallied 1900% to an all-time high of $401 in October. Here around $111, it feels like many people on Wall Street have given it up for dead. That's the kind of opportunity we like to capture. Yes, Upstart -- a relatively conservative favorite for 2022 -- clearly got a little ahead of itself in an environment where the Fed made sure everyone had free money to burn. But the company is more than a figment of the Covid era. It was expanding fast before the lockdowns and we doubt the pandemic really accelerated its disruptive trajectory. If anything, revenue capture in key consumer finance segments like auto loans might have actually slowed down in the viral shocks. Either way, UPST is now booking more revenue in a single quarter than it did in the entirety of fiscal 2020 and turns about 25% of it into good old EBITDA. The number of banks using its technology rippled in the past year. So did revenue and profit. Given that growth rate and those margins, we don't consider the stock expensive at all, even in a non-zero-rate world. Neither did backers like Mark Cuban, Eric Schmidt, Vinod Khosla and Marc Benioff. The secret weapon here is completely automated loan approval driven by Big Data, effectively starting the process where conventional credit scores give up. FICO beware! We're hearing that many banks are abandoning the old score-driven process entirely. With massive predictive datasets getting more accurate all the time, an expansive business model and economies of scale starting to kick in, UPST has a bright future ahead. The company has a clean balance sheet with $1 billion in cash to cover $720 million in debt and a small but fast-growing customer base of banks that love the technology. UPST isn't going away. And when Wall Street is ready to embrace disruption again, we'll be here waiting for the next run to $400 and beyond. Nate Pile, Little River Investment Guide As a more conservative Top Pick for investors looking for a nice blend of growth and income, I am going with a household name -- Charles Schwab . Thanks to various trends that have been underway in the financial industry for a while (along with a management team that has been astute enough to position the company to take advantage of them), Schwab's stock has been climbing in exactly the sort of slow-but-steady manner I most like to see. To be sure, there are other smaller brokerage firms with trading platforms that may be more attractive to certain niche groups of traders, but, in my humble opinion, Schwab's line-up of products and services is one strongest and broadest in the industry. And given the company's size and leadership position in the sector, I expect its ability to attract additional clients (and their capital) to only continue growing in the years ahead. Though its dividend payout is smaller than many other stocks I like -- currently just $0.72 per year -- I believe the stock has a great risk-reward ratio at current prices and provides some nice potential for growth in the years ahead. SCHW is a buy under $90. Benj Gallander, Contra the Heard After being a profit spinner seemingly forever, Banco Santander -- a favorite conservative idea for 2022 -- lost €9 billion in the first nine months last year when the bank made a large write-down of goodwill and deferred tax assets. This year was a return to old form with net income of €5.8 billion in the first nine months of 2021, the best numbers since 2009. Banco Santander also pays a dividend, but it is only one-quarter of what it used to be. Increases are likely in the cards. The corporation's goal is shareholder renumeration of about 40 percent of the group's underlying profit, with some in dividends and the rest in share buybacks. Besides Spain, SAN operates in 15 other countries, some in which it has major girth. It is looking to expand in the United States and also Mexico right now along with some other nations. A headwind facing a stock price increase is the growth in share count. At just north of 17 billion, it is not quite double a decade ago. That will also slow dividend growth. Despite the negatives, Banco Santander is a very important player in both the Spanish and global financial arenas. It was recently named Bank of the Year in the Americas, by Banker Magazine. Ultimately, we feel that SAN, which previously traded above $20 per share, has plenty of room to shine, between both capital gains and dividend growth. Rida Morwa, High Dividend Opportunities Sachem Capital is mortgage REIT that specializes in originating real estate backed loans to commercial clients and house flippers, observes Rida Morwa, income expert and founding partner of High Dividend Opportunities. Sachem Capital is a newer REIT that went public in 2017 and has rapidly grown. The stock -- our Top Pick for more speculative growth -- recently carried a gigantic yield of 8.2%. Their key focus has primarily been on residential fix and flip properties with loans bearing interest rates of over 10% and durations of 1-3 years. SACH has strong conservative roots in its loan origination practices keeping loan-to-value levels below 70%. So why is Sachem a top pick for 2022? First, SACH is a bet on the housing boom in the United States. It invests in some of the best geographic location where real estate prices are soaring. The company also has a proven ability for enormous growth. We expect over 25% share price growth and several dividends hikes too. SACH has inked a new credit line with Wells Fargo for 1.5% and a master repurchase agreement for 4%, cutting their cost of capital by over 50%. Furthermore, they have been very active in replacing their higher-cost baby bonds with lower-rate ones. All of this translates to more income falling to their bottom line. As a REIT, Sachem must payout 90% of their taxable revenue, the other 10% can go back to raise their book value per share. Sachem has also effectively grown this each quarter before their newly reduce cost of capital. Housing stocks for new homes in the U.S. are severely below demand. Older homes are being rapidly fixed and resold to buyers looking to own a piece of the American dream. Most of these companies do not want the long delays tied to the loan process of major financial institutions; this is where SACH fills a niche need. Furthermore, SACH has exposure to Connecticut, Florida and Texas -- all places with strong population growth or limited room to build new homes. There has been no lack of demand for SACH's loans, and their high dividend yield attracts investors to bid up their share price, as their earnings and therefore dividend grows so too will their share price continue to rise. Sachem returned 49% in 2021 in share price value gain alone, smashing the market indexes, and we expect over 50% returns in the next two years strongly outperforming the market. Ingrid Hendershot, Hendershot Investments Visa is a favorite investment idea for the coming year. The highly scalable nature of Visa's payment infrastructure along with its inherent cost advantages enable the firm to consistently deliver net profit margins hovering around 50% and returns on shareholder equity exceeding 30%. For fiscal 2021, Visa's revenue increased 10% to $24.1 billion with net income charging ahead 13% to $12.3 billion and EPS up 15% to $5.63. Visa maintains a strong balance sheet thanks to the company's excellent free cash flow generation that has compounded at a 14% annual rate during the past five years. This enables the company to invest in the business, return cash to shareholders and acquire new, potentially disruptive platforms. In June, Visa agreed to the $2.2 billion acquisition of Tink, a leading open banking platform in Europe that enables banks and fintechs to develop data-driven financial services and person-to-person transfers. Visa also plans to acquire Currencycloud, a global platform that enables banks and fintechs to provide currency exchange solutions for cross-border transactions. Investors seeking to bank long-term returns should consider stuffing their wallets with shares of Visa, a high-quality global leader with profitable growth and robust cash flows. Doug Gerlach, SmallCap Informer Significant populations of the world live their day-to-day lives without access to traditional banking and instead rely on commercial services to pay bills, cash checks, and send funds to family member. International Money Express is a leading provider of money transfer services that allow users to send funds to, from, and within the United States, Latin America, Mexico, Africa, Central and South America, and the Caribbean. Though plausibly considered a fintech business, the physical presence offered by Intermex is key to its success with its user base. It provides services through a network of more than 100,000 payer locations. For the full fiscal year 2021, management now expects revenue of $450 million-$455 million and net income of $44 million-45 million. At the low end of these ranges, year-over-year revenue growth would be 26.0% and net income growth would be 30.2%. EPS growth would then come in at $1.12 or better, representing 27% growth over FY 2020. Intermex's strong cash generation is allowing the company to invest more quickly in new growth products such as reloadable cards, including pre-paid debit and direct deposit payroll cards. We maintain our expectations for Intermex to deliver future revenue growth of 14.0% a year and EPS growth of 16.0% on average through 2025. Pre-tax profit margins stood at 8.0% in 2015 and reached 13.0% in 2020. PTP margins in the first three quarters of 2020 were 13.5% or higher. From its recent P/E of 14.1, we see the company able to support a high P/E of 17.0, which would indicate a future high price of $39. On the downside, a retreat to a low P/E of 11.0 would suggest a low price of $12. The reward/risk ratio using these prices is 6.9-to-1, with an annualized 20.4% total return possible. Get free access to the full 100+ page Top Picks Report featuring the nation's most respected and well-known newsletter advisors' favorite investment ideas for 2022.

10 Top Picks in Fintech and Finance for 2022

Newsletter advisors this year are focused on smaller niche plays in private equity, business development, credit, mortgages, money transfers and fintech.

Columnist Conversation

'Soft Landing' to Gain Traction?

Listen to the Latest AAP Podcast!

Beefing Up the Portfolio With a Three-Course Trade

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.