3 Payments Stocks That Are Screaming Buys in August

The global economy is vast, with trillions of dollars constantly flowing back and forth. Facilitating all those transactions is big business, too. The global payments market is worth an estimated $2.6 trillion and could grow to nearly $5 trillion by the decade's end. You don't need to look hard to find an investment opportunity here.

Naturally, such a big industry attracts a lot of attention. But you don't need to find the next hot stock to make money in the payments industry.

Here are three proven winners that operate worldwide, have tremendous growth potential, and their modest price tags make them screaming buys right now.

1. The world's leading payment network is on sale

Visa (NYSE: V) is the world's largest payment network, with approximately 4.5 billion payment cards circulating worldwide and nearly $4 trillion in quarterly payment volume. The company generates revenue by charging a small fee on each payment that uses its network. The broad shift from cash to cards and digital payments has fueled years of impressive growth. Visa's annual revenue has nearly tripled over the past decade, growing to $35 billion. Earnings have more than quadrupled to over $9 per share due to steady growth and years of share repurchases.

The company is highly profitable; roughly $0.54 of every revenue dollar winds up as free cash flow , which Visa often sends to shareholders one way or the other. The company has paid and raised its dividend for 16 years (each year since its IPO) and retired 21% of its shares over the past decade with share repurchases . That's helped Visa quadruple its earnings per share during that time to over $9 today. Visa is a bonafide compounder; the stock has obliterated the market, returning 2,000% since going public in 2008.

The broad growth of payments should continue fueling Visa's long-term growth. Analysts believe the company will grow earnings by an average of 14% annually for the next three to five years. Due to its high quality, the stock typically commands a premium. Shares have traded at a price-to-earnings (P/E) ratio averaging 35 over the past five years, but the stock trades at just 26 times its estimated 2024 earnings today. It's a rare opportunity to scoop up a proven market-beater on sale.

2. This might be Wall Street's most compelling comeback story

PayPal (NASDAQ: PYPL) was one of the first digital payment networks. It was born in the late 1990s and grew up in the internet's early years. Today, PayPal is a payments juggernaut with 429 million accounts. The company processes roughly $1.6 trillion in payments annually and generates over $30 billion in revenue. It operates several payment products, including branded checkout, white-label payment processing services, and the peer-to-peer payments app Venmo. Investors began doubting PayPal in recent years, fearing it had grown stale in the face of newer competitive threats. Shares prices have fallen nearly 80% from their all-time high.

The stock has averaged a P/E of 46 over the past five years. Today, trading at just 15 times its estimated 2024 earnings, PayPal is valued like it's cruising for bankruptcy. Ironically, earnings have never been higher, and analysts believe the business could grow earnings by nearly 15% annually for the next several years. PayPal has all the ingredients of a lucrative comeback story.

PayPal hired the young Alex Chriss as CEO a year ago to replace Dan Schulman, who retired at the end of 2023. So far, Chriss' leadership is paying dividends. PayPal recently released strong Q2 earnings that included raised guidance for 2024 revenue, earnings, free cash flow, and share repurchases. The company is successfully engaging with its user base; monthly active accounts grew 3% year over year in Q2. If these improvements continue, it's only a matter of time until Wall Street starts hopping back on the bandwagon.

3. A payments powerhouse sitting on the bargain rack

Mastercard (NYSE: MA) plays second-fiddle to Visa in the broader payments landscape, but it's no slouch. In fact, Mastercard's stock has outperformed Visa's since 2008. Mastercard has a lot in common with Visa. It's large enough to enjoy similar competitive advantages and economies of scale as Visa does but small enough to have more growth potential. Mastercard has roughly 3.4 billion payment cards in circulation and processes about $2.4 trillion in quarterly payment volume. Mastercard has benefited similarly from the global shift away from cash over the years.

The company has paid and raised a dividend for 13 consecutive years and has retired over 19% of its shares with repurchases over the past decade. Mastercard stands out from the crowd with a superior return on invested capital, which has averaged a staggering 47% over the past five years, besting even Visa, which has averaged 25%. It shows a high-quality business model and a strong management team leading it.

Shares trade at 32 times its estimated 2024 earnings. That doesn't sound cheap until you realize it's well below the stock's five-year average P/E of 41. Mastercard's growth prospects also look intact. Analysts believe the company will grow earnings by an average of nearly 18% annually over the next three to five years. This is a wealth compounder; investors shouldn't hesitate to scoop up shares at these prices.

Justin Pope has positions in Visa. The Motley Fool has positions in and recommends Mastercard, PayPal, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard, short January 2025 $380 calls on Mastercard, and short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy .