For a long while, financial stocks earned the reputation of being stuck in some muck. But that is no longer the case in 2019 as the Financial Select Sector SPDR ETF (NYSEARCA:XLF) has kept up with the general markets so far. But PayPal (NASDAQ:PYPL) stock continually delivers great returns, and even today it has a great setup for more upside to come next year.
PayPal stock is up 48% in two years and up more than 200% in five. So it’s not a slouch, as it has massively outperformed the XLF and the S&P 500. Over the long term, its fundamentals and demand for its services make it likely to continue to outperform.
The world is changing fast with technology — and in big ways. For example, we now want to stream everything. But a bigger change is coming in finance. There is a global shift to move all financial transactions to electronic formats. Part of it is that the credit card companies are morphing into financial technology operations. Fintech stocks as they are called are a growing bunch, and their stocks are a good bet for the long haul.
PayPal stock offers an opportunity for investors because it is one of the leaders. It has a front seat to the show. It is attractive to those who like to invest for the long term. But the technical setup now also offers shorter-term opportunities for active traders.
For the long term, this is a company that is delivering results at the top of a growing industry. So far management has shown that they are worthy of investor credit. Furthermore, the macroeconomic environment is still conducive for growth. All central banks are committed to cheap money which allows companies to execute on their plans.
Short-Term Upside in PayPal Stock
For the shorter term, PayPal stock is also showing technical upside potential. After the disappointing reaction to its earnings in July, PYPL corrected 22%. But after its October report, it has set higher lows and higher highs. Arguably, the stock is attempting a breakout from $108 per share.
If the bulls are able to stay above this zone, then they can use the platform they are forming now to successfully overcome resistance at $112 per share. This level marked sharp failure points first on Aug. 2 and again on Sept. 6. PayPal bulls need to overcome this hurdle to set new highs.
From one perspective, PYPL stock is lagging both Mastercard (NYSE:MA) and Visa (NYSE:V) stocks. MA and V are continually setting new highs even under stressful market conditions. Clearly PayPal has some catching up to do, and therein lies incremental opportunity.
So today’s technical setup is short term in nature but it also fits for the long-term investor’s purpose. Anytime a stock breaks out into new highs it attracts momentum traders. So going into 2020, PYPL’s outlook is rosy inside this overall bullish sentiment. Markets are showing upside potential so PayPal stock should also blossom into a new high in the first quarter of next year.
Bottom Line on PYPL
While there are no guarantees, there is some comfort in owning PayPal stock at this level. From the valuation perspective it does have a higher price-to-earnings ratio than Visa or Mastercard but a much lower price-to-sales ratio. So, it is not outrageously overpriced compared to its peers.
Owning it at these levels is not likely to be a dangerous financial decision. Furthermore, the long-term PayPal stock charts show support at its $95 pivot point. This is a zone that served as resistance into 2019, but has since served as a breakout. The bears also tested it once already, so the bulls can assume it will be there for support until it fails.