Mega-cap technology stocks have dominated, not only in 2020, but over the past decade. While many feel that this is the sector to stay with going forward, historical data says that may not be the case. In fact, the team at UBS recently noted that since 1973, if a U.S. equity sector was a top-two performer over the previous 10 years, it had only an 8% chance of staying there over the subsequent 10 years, as well as a 25% chance of falling into the bottom two. While technology may not drop that far, it makes sense to look at what could be hot going forward.
One area the UBS team likes for investors to position in now, for what they term as the “next big thing,” is financial technology, or fintech. They noted this when discussing the segment recently:
With double-digit annual earnings growth expected over the next decade, we see fintech as one of the fastest-growing industries globally. Investors will be best rewarded by investing in a diversified way, in our view, with a focus on payment industry leaders, technology companies launching disruptive fintech services and incumbent financial companies with a clear fintech strategy. Companies that are able to create platforms with network effects around emerging technologies like AI, blockchain and analytics are also potential winners.
We found four that not only are suggested by the UBS team for exposure and rated Buy or Neutral, but that look like solid 2021 ideas. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
When you are asked, “What’s in your wallet?” you can bet they are talking about this top company. Capital One Financial Corp. (NYSE: COF) is a diversified financial services company that offers a broad array of financial products and services to consumers, small businesses and commercial clients, including non-interest-bearing and interest-bearing deposits, such as checking accounts, money market deposit accounts, negotiable order of withdrawals, savings deposits and time deposits.
The bank also provides credit card loans; auto, home and retail banking loans; and commercial and multifamily real estate, commercial and industrial, and small-ticket commercial real estate loans. In addition, the company offers credit and debit card products; online direct banking services; and treasury management and depository services.
It offers its services through the internet and mobile banking, as well as through ATMs and branches located in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia.
Investors receive just a 0.36% dividend. The UBS price target for the Buy-rated shares is $108. That compares with a $120 Wall Street consensus target and a Thursday close of $114.40 per share for Capital One Financial stock.
This is another top financial stock with very wide brand recognition. Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. The bank operates as a direct banking and payment services company in the United States.
Discover Financial operates in two segments. The Direct Banking segment offers Discover-branded credit cards to individuals. Other consumer products and services include private student loans, personal loans, home equity loans and other consumer lending, as well as deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts, and individual retirement arrangement certificates of deposit.
The Payment Services segment operates the PULSE network, an automated teller machine, debit and electronic funds transfer network. Its Diners Club International is a payments network that issues Diners Club branded charge cards and provides card acceptance services. The Discover Network processes transactions for Discover-branded credit and debit cards, as well as provides payment transaction processing and settlement services.
Shareholders receive a 1.79% dividend. The UBS team has a Buy rating and a $94 price target. The consensus target is $115. Discover Financial Services stock closed at $98.43 on Thursday.