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1 Digital Banking Stock Down 61% to Buy and Hold Forever
SoFi Technologies (NASDAQ: SOFI) is on a roll. The stock recently soared to $10 per share, its highest price since early 2022. It’s progress, but the stock is still down about 60% from its all-time high, set during the market bubble in 2021. SoFi is a digital bank, but it’s not exactly a banking stock. (Well, it’s not a traditional bank stock.)
So, just what is SoFi? It could be an industry disruptor with traditional banking features and the added upside of a technology company.
Here are five reasons investors should consider buying SoFi Technologies and tucking it away for the foreseeable future.
1. It’s wildly popular among consumers
On the surface, SoFi Technologies is a digital bank. It offers banking services, loans, and financial products through its website and smartphone app. Unlike many longstanding banks, SoFi doesn’t have any physical branches. It’s a business model born in the digital age. More importantly, SoFi has become quite popular. The company’s customer base has grown from 1.4 million at the start of 2020 to nearly 8.8 million today.
SoFi’s customer count grew 41% year over year in the second quarter, so this trend still has plenty of momentum. SoFi has become especially popular with young, high-earning adults. This is one of the most valuable customer segments in the financial sector, because they will drive the economy over the coming decades.
2. More than a bank
Behind the curtain, SoFi has financial technology in its DNA. In 2020, it acquired Galileo, a fintech company that provides payment processing, card issuing, and embedded finance services to over 100 companies, including H&R Block, Toast, MoneyLion, and others, across 16 countries. Collectively, Galileo’s customers add up to 158 million accounts.
SoFi’s technology platform segment (Galileo) grew its contribution profit by 24% last year, representing about 10% of the company’s total in 2023. Additionally, Galileo accounts have quintupled since the first quarter of 2020. Over time, Galileo could become a more significant contributor to SoFi’s business and expose investors to broader growth across the fintech industry.
3. Student loan upside
SoFi started in the student loan business and built a reputation in refinancing. In 2019, SoFi originated $6.7 billion in loans. However, a federal student loan freeze for most of the past four years and higher interest rates since 2022 have effectively cratered demand for refinancing. SoFi’s student loan originations were just $2.6 billion in 2023, despite it adding millions of customers since 2019.
It looks like the worst is past. The federal freeze is virtually over, and interest rates have seemingly peaked. Meanwhile, analysts estimate that the private student loan market could grow by 10% annually through the early 2030s. SoFi’s student loan business could uncoil like a spring and boost growth over the coming years.
4. SoFi could lean into fee-based revenue
SoFi may not operate quite like a traditional bank over the long term. Traditional banks hold loans on their balance sheets and collect the interest. The risk of default affects how the market values bank stocks compared to most other businesses. Galileo already represents a non-lending component of SoFi’s business, but things got more interesting recently.
Just days ago, SoFi announced an agreement to expand its personal lending business with a $2 billion funding agreement with Fortress Investment Group. Simply put, SoFi will underwrite personal loans but then offload them. SoFi will miss out on the interest income, but it will reduce its balance sheet risk. CEO Anthony Noto commented in the press release, noting an intention to grow SoFi’s fee-based revenue. Holding fewer loans on its books could affect how the market values SoFi stock.
5. Earnings growth is set for lift-off
I often use book value to evaluate bank stocks, but Galileo and a potentially less lending-dependent business model make earnings a viable way to value SoFi stock. SoFi reported a GAAP profit for the third consecutive quarter in Q2 2024. The company is right at that sweet spot where operating leverage (when revenue grows faster than expenses) causes high-speed earnings growth.
Analysts estimate that SoFi will grow earnings by an average of 51% annually for the next three to five years. Given SoFi’s popularity and growth opportunities, I wouldn’t be surprised to see the company enjoy strong earnings growth for the foreseeable future. The stock looks like a candidate to perform well for investors as those earnings compound for years to come.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,285!*
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Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,456!*
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 14, 2024
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Toast. The Motley Fool has a disclosure policy.
1 Digital Banking Stock Down 61% to Buy and Hold Forever was originally published by The Motley Fool
The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com
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