Over the next few weeks I will highlight specific stocks and industry groups that could benefit from secular growth trends. The idea is to build out a watchlist for the coming months, if not years.
As of this writing (2-April-2020), we are in a bear market and nobody knows how long it will last or how far down it will go. Few stocks are immune to broad bear markets, not even stocks in business segments with strong growth prospects in the coming years.
Even companies that benefit during a crisis are still vulnerable to a broad economic downturn. Microsoft Teams, a part of Office 365, is leading the way in remote working during the covid-19 crisis. This part of the Microsoft business is booming, but overall software subscriptions and cloud services could be impacted by a downturn in the global economy.
Digital payments are set to grow considerably in the coming years. Chartists looking for a list of associated stocks can turn to the Mobile Payments ETF (IPAY). As the ETF’s website states, IPAY is designed to take advantage of the shift to digital and electronic payments. Below is a comma separated list of the US-based symbols for use in a watchlist.
PYPL, FIS, V, MA, FISV, GPN, AXP, SQ, FLT, WU, GDOT, PAGS, DFS, EVTC, ACIW, STNE, EEFT, NCR, WEX, EVOP, QIWI, IIIV, UEPS, IMXI, PAYS, BABA
As with most ETFs, you get the good, the bad and the ugly in the Mobile Payments ETF. There are established large-cap players (MA, V), mid-cap stocks (EEFT) and small-caps (EVOP). Note that all of these stocks fell in March and did not buck the bear. In fact, these stocks fell quite hard with the six week decline from mid February to late March ranging between 23 and 60 percent.
Here are some features that will drive secular growth in mobile payments:
- Cash payments will decline dramatically (especially since covid-19)
- Credit card swipes will decrease
- Digital and mobile payments will replace cash and credit cards
- Smartphone payments and transfers will increase dramatically
- Contact-less payments are the future
- E-commerce will continue to grow (especially since covid-19)
- Person to person transfers will also become digital
Three articles for some background reading:
Chart is Still More Important than Narrative
While it is interesting to speculate on growth industries and stocks that will benefit, the price chart is still the ultimate arbiter. Narratives are dangerous because they can cloud your thinking with a rose colored tint. This can cause a bias when analyzing price charts.
This also makes me wonder if all this research is worthwhile. Why? Because we can identify the winners by comparing the price charts and trends. In other words, the winners will rise to the top and stand out based on price action.
Almost any momentum strategy focused on stocks in the S&P 500 would have captured Mastercard (MA) from July 2016 to September 2018, which is when it more than doubled. Here at TrendInvestorPro, we were highlighting IPAY and a few other tech-related ETFs as they turned the corner in October-November 2019.
Comparing the Group on a Scatter Plot
In any case, I will single out six stocks that are industry leaders and holding up better on the price charts. And the rose-colored winners are: BABA, GPN, MA, V, FIS, FISV. I added BABA and FISV to the list, even though they are not part of IPAY.
The image below shows a scatter plot for over a dozen mobile payment stocks. The y-axis shows how far the close is above/below the 40wk SMA and all stocks are below this SMA. BABA is the closest to its 40wk SMA and holding up the best.
The x-axis shows how far the 10wk SMA is above/below the 40wk SMA, which is a longer-term measure. The 10wk is above the 40wk for stocks to the right of the zero line. BABA, V, and GPN feature in this group. Stocks where the 10wk is more than 5% below the 40wk are clearly the laggards in this group.
Six Stocks that Stand Out
The following six charts show weekly bars for each stock with the 10-wk SMA, 40-wk SMA and relative strength comparative (BABA/$SPX ratio). The green shading marks the December 2018 low and all six are still above this low, which is a moral victory of sorts at this stage. Note, however, that all six moved lower the last six weeks and all six are down 10 percent or more year-to-date. They are not immune to the bear. Nevertheless, IPAY and these six stocks are on my watchlist going forward.