Resilient Square Stock Will Defeat the Bears

Square stock is perfectly positioned to capitalize on the emerging trends of the 21st century economy

I recently published my top recommendations of the best stocks to buy for a post-coronavirus bump. There are huge opportunities for strong profits as the economy rebounds, so this is a great time for investors. But one of those names, Square (NYSE:SQ) stock, deserves a closer look.

Let’s do that now.

I’m already on the record as saying I think SQ is the ideal stock to buy for the 21st century economy. Mom-and-pop businesses, food trucks, Girl Scout cookie sales. They all can easily process credit card payments by using Square’s dongles attached to a mobile device.

And now that we live in a world touched by the novel coronavirus, people are going to be much less willing to handle cash. In turn, they will be more inclined to make payments with their Visa (NYSE:V), Mastercard (NYSE:MA), American Express (NYSE:AXP) or Discover (NYSE:DFS) cards.

Even payment options from Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) will likely see more traffic as people decide transferring money from person to person isn’t the most hygienic thing in the world.

SQ Stock at a Glance

Square is trading close to $80 right now and is up nearly 30% year to date. But that doesn’t represent the absolute whipsaw that SQ put investors through so far this year.

The stock price fell more than 55% in March as the pandemic shuttered many businesses across the country. And it disproportionally hurt SQ, as a huge percentage of Square’s revenue comes from small businesses that make less than $125,000 annually.

The rally really caught fire earlier this month when Square issued its first-quarter earnings, in which the company reported revenue of $1.4 billion that beat Wall Street’s estimates of $1.3 billion.

Square’s Cash App saw its revenue jump nearly 200% to $528 million. The app is becoming more important for users because it offers access to CARES Act stimulus payments approved by Congress.

However, Square reported a net loss for the quarter of $106 million as it increased its reserves in preparation for likely loan losses. The company issued a stark warning to investors that, while it should come as no surprise, seems to have scared some analysts off:

“We recognize that the macroeconomic environment is having a significant impact on people around the world, including many of our customers. This may cause a variety of outcomes for our financial results in upcoming quarters, depending on the length and severity of the impact from COVID-19, and we expect a material impact to our second-quarter results.”

The Bears Are Coming Out

Square has been rallying nicely, but bearish sentiment is emerging. Frankly, the origin of that sentiment is off the mark.

Bank of America analyst Jason Kupferberg recently downgraded SQ stock from “buy” to “underperform,” while expressing doubt that small businesses will be able to bounce back once their government stimulus checks run out.

UBS analyst Eric Wasserstrom also issued a downgrade, from “neutral” to “sell,” while raising his price target from $54 to $63. He cited what he called a “weak outlook” for Square’s seller business.

Guggenheim analyst Jeff Cantwell also issued a downgrade. He said Square will be hurt by small and mid-sized business that he expects will struggle through 2021.

With all due respect, the bearish commentary on SQ stock is short-sighted right now.

The company is building amazing depth. Square also has Square Register, Square Payroll and Square Capital. These solutions give it the resources to handle both personal and business finance.

The company also received approval in March to open its own bank, which opens the door for it to offer personal and business banking services.

Cash App also features the Cash Card, which works like a debit card and lets customers buy and sell bitcoin and invest in stocks. Square said its revenue off of bitcoin transactions was $306 million last quarter, compared to $65.5 million in 2019.

In addition, Square Cash allows people to transfer money to each other with their mobile devices, making it a legitimate competitor to PayPal (NASDAQ:PYPL) and  its Venmo app.

At the end of 2019, Square Cash had 24 million active users, compared to 52 million for Venmo.

The Bottom Line on Square

Even if smaller businesses struggle in the aftermath of the pandemic, Square is an ideal stock to own. It makes perfect sense for today’s economy.

SQ stock maintains its buy rating in my Portfolio Grader, where it continues to have a B grade.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.