The stock market has been quite volatile recently. This is creating opportunities for long-term investors like myself.
Here, I’m going to highlight two areas of the market I believe offer a lot of value right now. If I was looking to put new money to work today, this is where I’d be investing.
Large-cap FinTech stocks
One area of the market that strikes me as great value right now is large-cap FinTech/payments stocks. I’m talking about the likes of PayPal, Mastercard, and Visa. All three of these stocks have taken a hit recently and I think this has created a great buying opportunity for long-term investors like myself.
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In my view, all three of these companies have the potential to generate significant growth in the years ahead. Over the next decade, trillions of transactions are set to shift from cash to credit cards and electronic payments and these companies, with their dominant market positions in the electronic payments space, should benefit.
It’s worth noting that Warren Buffett owns Visa and Mastercard in his Berkshire Hathaway portfolio while Terry Smith holds Visa and PayPal in his Fundsmith portfolio.
Of course, there are risks to consider here. One is industry disruption. Recently, analysts at Bernstein downgraded PayPal from ‘buy’ to ‘hold’ on the back of concerns over new technologies such as Buy Now Pay Later (BNPL). Meanwhile, Amazon UK recently announced that it will no longer be accepting Visa credit cards.
However, with all three of these stocks now sporting forward-looking P/E ratios in the 20s and 30s, I think the risk/reward proposition here is attractive. I’d be very comfortable buying all three of these stocks for my portfolio today, given their dominant positions, high levels of profitability, and potential for long-term growth.
UK small-cap stocks
I’m also seeing plenty of value in the UK small-cap space at present. In this area of the market, many stocks have experienced sharp pullbacks recently, and I think this has created some nice buying opportunities.
One stock I have my eye on is Alpha FX. It’s a fast-growing provider of foreign exchange risk management services that also operates a payments business. A few months ago, its share price was up near 2,300p. However, now it’s under 1,900p. At that price, the forward-looking P/E ratio is about 34 which I think is very reasonable, given the growth the company is achieving (three-year revenue growth of 242%).
Another British small-cap stock I like the look of right now is Calnex Solutions. It’s a leading provider of 5G testing equipment. A few weeks ago, its share price was near 150p. However, now it’s near 115p. At that price, the forward-looking P/E ratio is about 23, which I see as attractive, given the company’s track record and growth prospects.
It’s worth pointing out that small-cap stocks like AFX and CLX can be highly volatile. In the short term, their share prices can be very unpredictable.
However, I’m comfortable with this risk. I’m willing to tolerate short-term volatility in order to generate long-term gains.
