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Why PayPal is a Better Buy Than Mastercard

PayPal (PYPL) and Mastercard (MA) are two of the big names in the payments space. Both have their merits in terms of future growth and performance, but PayPal may be the better Buy right now. Patrick Ryan lays out why that's the case.

PayPal (PYPL) and Mastercard (MA) are two of the most popular publicly traded companies in the financial space. PYPL is more centered on fintech, while MA is more of a payment processor that greases the economic wheels.

Both stocks have the potential to move upward as the economy recovers. However, if the economy does not fully reopen in the months ahead, PYPL will likely be the better play.

Let's take a closer look at which of these two stocks has more potential as we settle into the blank slate and fresh start of 2021.

PYPL and MA by the Numbers

PYPL started the new year at $231 and has since climbed to $247. The stock doubled in 2020 alone. PYPL is currently around $7 away from its 52-week high of $249.85. The stock has a forward P/E ratio of 53.06. Though this is fairly high, it is par for the course in the context of tech stocks. PYPL qualifies as a fintech play. Of the 31 analysts who cover PYPL, twenty-six recommend buying, five recommend holding, and none recommend selling.

In comparison, MA has traded sideways through the first couple weeks of the new year. The stock was priced around $344 at the start of the COVID-19 selloff yet bounced back as the year progressed. It ultimately returned to its pre-COVID price point in the summer, only to tail off once again and return to the low $300s in the late fall.

MA is $40 away from its 52-week high of $367.25. The stock has a forward P/E ratio of 39.69. Analysts view MA as underpriced, establishing an average price target of $376.37 for the stock, meaning it has a potential upside of 15%.

PYPL Vs. MA in the POWR Ratings

It is clear PYPL, and MA both have their unique merits as potential investments. Let's take a look at the POWR Ratings to determine which has the edge. PYPL is a POWR Ratings beast with "A" grades in the Trade Grade and Buy & Hold Grade components. It also has "B" grades in the Industry Rank and Peer Grade components. The stock is ranked #1 out of nearly 50 stocks in the Consumer Financial Services industry.

MA has an "A" grade in the Trade Grade component and "B" grades in Industry Rank and Buy & Hold Grade. However, MA is far behind PYPL in terms of Industry Rank, coming in at 16th out of 47 stocks in the Consumer Financial Services industry.

MA in 2021

MA and Visa (V) are the two top dogs in the worldwide digital payments space. MA's expertise in digital transactions sets the stage for the implementation of cryptocurrency. In fact, MA has partnered with R3, a blockchain software business, to create a cross-border system for transactions. MA also makes money through comparably conventional payments made with credit cards. All in all, MA comes in second in terms of market share of credit card transactions in the United States.

MA processes payments instead of lending money, meaning it does not have legal liability if cardholders default. Now that MA's board of directors have approved a stock buyback program totaling a whopping $6 billion, the company will repurchase its shares in the year ahead, likely boosting its stock price all the more. However, there is the potential for a sluggish economy to continue to contract or stagnate, meaning less money will be spent, and MA might not hit its earnings estimates.

PYPL Moving Forward

PYPL revenue is up 13% on a year-over-year basis. The company's revenue growth is up to 25% in each of the prior quarters. PYPL total payment volume growth came in at nearly 40%. It also recently finalized its acquisition of Honey Science to provide online shoppers with helpful tools to save money at the point of checkout.

Add in the fact that PYPL is implementing contactless QR codes to expand to in-store payments, and investors have even more reason to be bullish. PYPL also provides support for Bitcoin transactions. This is quite the shrewd business move that has the potential to send the stock to even greater heights in the year ahead.

And the Winner is…

PayPal. PYPL is more of a pure fintech play than MA, meaning it is that much more likely to draw significant investor interest moving forward. MA's executives certainly deserve credit for remaining open to crypto transactions, yet PYPL simply has too much potential to ignore. PYPL is the better play in 2021.

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PYPL shares rose $2.74 (+1.12%) in premarket trading Thursday. Year-to-date, PYPL has gained 5.45%, versus a 2.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.


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