Analyst explains why fintech could outperform this year

Fintech didn’t have a good 2021, with the Global X Fintech ETF (FINX) seeing a 10% decline last year, but Wolfe Research’s Darrin Peller is convinced the sector will outperform in 2022.

Peller’s remarks on CNBC’s ‘TechCheck’

Peller does not see tightening regulations as much of a threat for the fintech space. Making his bullish case for the sector on CNBC’s “TechCheck”, he said:

It’s very rare you see two years in a row of underperformance in fintech stocks. The last two times it underperformed was 2010 and 2016. The next year, there was outperformance; Visa and Mastercard up 55% in 2011 and 45% in 2017.

Now that valuations have come down in fintech, Peller says the M&A activity is likely to pick up this year. He expects banks to make acquisitions in 2022 to expand their footprint in the fintech space. Established giants like Visa, Mastercard, and PayPal, Peller added, might also do the same.

Peller’s top pick within the fintech space

Within the fintech space, one name in particular that pops out to him that he recommends investors buy at a discount is Square Inc (NYSE: SQ). Peller added:

Square has buy now pay later as a theme, it has crypto as a theme, it has digital wallets in the cash app side, and its convergence with software and payments will really differentiate it long term. It’s rare you get these kinds of stocks at these valuations.

The digital payments company closed 2021 down more than 25%. It is currently trading at $145 a share versus Jefferies’ price target of $300 that represents an over 100% upside from here.