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1 Stock To Buy, 1 To Dump As COVID Numbers Spike

By Investing.com (Jesse Cohen/Investing.com)Stock MarketsNov 01, 2020 07:17AM ET
www.investing.com/analysis/square-vs-mastercard-which-stock-is-the-better-buy-200543073
1 Stock To Buy, 1 To Dump As COVID Numbers Spike
By Investing.com (Jesse Cohen/Investing.com)   |  Nov 01, 2020 07:17AM ET
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Stocks on Wall Street ended lower on Friday, with the major U.S. indices—including the NASDAQS&P 500 and Dow Jones Industrial Average—enduring their worst week since the dramatic drop in March.

With nerves mounting over the spike in coronavirus cases and the fast-approaching Nov. 3rd U.S. presidential election, this upcoming week will be eventful. 

In this environment of heightened uncertainty and volatility some stocks have proven themselves better equipped to successfully navigate the markets' whipsaws, while others are more vulnerable.

Below we'll highlight one stock on track to continue to thrive and one likely to see further losses in the coming days:

Stock To Buy: Square

Square (NYSE:SQ)—the digital payment processor run by Twitter CEO Jack Dorsey—has been one of the big winners of the ongoing coronavirus crisis, as it benefits from the accelerated shift to online shopping and e-commerce during the pandemic.

Shares of the digital payment provider have outperformed the S&P 500 by a wide margin in 2020, soaring 148%. The stock closed at $154.88 on Friday, giving the San Francisco-based tech firm a market cap of roughly $68.7 billion.

Square Daily Chart
Square Daily Chart

Square—whose second-quarter earnings released in early August—crushed estimates, is scheduled to next report financial results on Thursday, Nov. 5 after the closing bell.

Consensus calls for earnings per share of $0.16 for the third quarter, down from earnings of $0.25 per share in the year-ago period. Revenue, however, is forecast to soar more than 200% from the same period a year earlier to $2.04 billion from $602.2 million.

Beyond the top-and-bottom line numbers, most of the focus will be on the performance of Square’s booming Cash App business. The mobile payment service, which allows users to buy and sell Bitcoin and recently added a stock-trading feature, saw year-over-year revenue growth of 140% in Q2.

Even more impressive, the consumer-facing app generated $875 million of Bitcoin sales and $17 million of Bitcoin gross profit in its last quarter, up a whopping 600% and 711% year-over-year.

Additionally, investors will pay close attention to the mobile payment processor’s update regarding gross payment volume (GPV) growth. Square's Q2 GPV, or the value of all transactions processed on its platform, decreased 15% year-over-year to $22.8 billion, mostly due to its exposure to restaurants and small businesses.

We expect Square, which has made a name for itself by providing innovative alternative payment processing methods to businesses, to report another strong quarter as the ongoing coronavirus pandemic has created an ideal environment for digital payment providers to succeed.

Stock To Dump: Mastercard

Financial services corporation Mastercard's (NYSE:MA) stock—which ended at $288.64 on Friday—suffered its worst week since the mid-March selloff, tumbling 12.4%, as investors rushed for the exits following the release of disappointing financial results.

The steep weekly decline saw shares erase their gains for the year, with the stock now down more than 3% year-to-date. Even more alarming, MA shares are currently 21.4% below their all-time high of $367.25, reached in late August.

Mastercard Daily Chart
Mastercard Daily Chart

Mastercard reported a sharp drop in third quarter net profit last week, as the coronavirus pandemic resulted in customers spending less on its credit and debit cards due to weak travel spending.

The Purchase, New York-based credit card processor announced earnings per share of $1.60, down 26% from the year-ago period and missing expectations for EPS of $1.61. Revenue meanwhile slumped 14% year-over-year to $3.84 billion, below forecasts for sales of $3.96 billion.

The fall in revenue was largely driven by a sharp decline in travel-related spending during the summer months, with the company reporting a decline of 36% in cross-border volume, which refers to when the card issuer and merchant are from different countries.

Gross dollar volume, which is the dollar amount spent using Mastercard branded credit, increased just 1% from the same quarter a year earlier to $1.6 trillion.

Mastercard CEO, Ajay Banga, said on the company’s earnings release on Oct. 28:

“We are seeing encouraging progress in the trajectory of domestic spending, while travel spending remains a challenge.”

Banga added that it will take time for consumers to build back the confidence needed to travel. Indeed, the renewed surge in COVID-19 cases in the United States and Europe will likely continue to disrupt global travel trends in the months ahead. 

From a technical standpoint, Mastercard shares have fallen below their respective 50-day, 100-day, and 200-day moving averages in recent days, which usually signals more losses ahead.

Taking all this into consideration, MA shares look set to remain under additional pressure in the coming days.

1 Stock To Buy, 1 To Dump As COVID Numbers Spike
 

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1 Stock To Buy, 1 To Dump As COVID Numbers Spike

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Comments (12)
Ahmed Lkouakji
Ahmed Lkouakji Nov 02, 2020 1:44PM ET
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hi niky, thank you for your comments. my bullish thesis remains intact due primarily to square's s ...read more
Indiana Jones
Indiana Jones Nov 02, 2020 4:23AM ET
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Please reread what you just wrote about SQ. Everything you said is known and completely priced in...and then some. SQ is setting up to be another Fastly, but for those who are long, I hope I'm wrong. Wouldn't touch MC with a 10-ft pole right now so I agree on that. No current position in either.
Sasa Mjerzva
Sasa Mjerzva Nov 02, 2020 12:42AM ET
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Dropbox is a buy?
Shawn Gachassin
Shawn Gachassin Nov 02, 2020 12:42AM ET
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MOGO is a buy. Canada's Square is just about to take off
Ashish Bhura
Ashish Bhura Nov 01, 2020 10:37PM ET
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SQ is definetly a buy but after result
Jimmy Wong
Jimmy Wong Nov 01, 2020 3:56PM ET
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dump both
Pablo Ramila
Pablo Ramila Nov 01, 2020 2:00PM ET
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Yeah, sell MA after 15% decline 👌🏼
Billy Bilnaad
Billy Bilnaad Nov 01, 2020 1:27PM ET
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MA is a solid stock at a great price right now. Strongly disagree with this article
Angus Malarkey
Angus Malarkey Nov 01, 2020 12:19PM ET
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To sell MasterCard at this time when a second lockdown is likely would be a mistake. MasterCard, Visa and PayPal are all better choices than Square....imo
Michael Johnston
Michael Johnston Nov 01, 2020 11:23AM ET
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do not buy square into earnings. you will lose 30 percent
hammad haroon
hammad haroon Nov 01, 2020 11:18AM ET
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Great Analysis
Carlos Escobar
SELLxTHExTOP Nov 01, 2020 9:47AM ET
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Perfect analysis
Dominika Gallová
Dominika Gallová Nov 01, 2020 7:22AM ET
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Hi Jesse, I like your articles always. In this one may I ask you, are you so sure about SQ ? I kind of think that this obe got hurt now because of a huge run SQ did during the first Covid era... may you please say some of your thoughts?Thank you, Niky.
Cyrus Cheung
Cyrus Cheung Nov 01, 2020 7:22AM ET
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He wont reply u
Jesse Cohen
Jesse Cohen Nov 01, 2020 7:22AM ET
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Hi Niky, thank you for your comment.  My bullish thesis remains intact due primarily to Square's strategy of aggressively building out features for its Cash App. It still remains as one of my top picks in the fast-growing fintech space. $SQ
 
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