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Bet on the “Cashless King” of Europe

Worried about a looming correction among overvalued U.S.-based stocks? Gnashing your teeth over the ceaseless strife in Washington, DC? Unconvinced that emerging markets are on the mend?

Look to Europe. With the recent defeats of anti-EU politicians across the Continent, investors are now focusing on the region’s greatly improving business and economic conditions.

With the trauma of last year’s Brexit now fading, political anxieties have eased and the euro zone’s economy is bouncing back better than analysts had predicted. The profitable potential of Europe is a major but under-reported story, which presents an opening for investors who act now.

One particularly attractive value play that’s tapped into overall European growth is Wirecard AG (OTC: WRCDF), the largest credit card company in the region. Wirecard is Europe’s version of Visa (NYSE: V), with even greater prospects for investors.

Wirecard flies under Wall Street’s radar, but it’s our job to spotlight the gems that rarely get mentioned by the yakkers on CNBC. Wirecard is positioned to benefit from the euro zone’s economic expansion this year, which is being propelled by loose central bank policies, low inflation and dissipating socio-political tensions.

Elections this year throughout Europe have resulted in a repudiation of anti-establishment political insurgents who were making investors and corporate chieftains nervous. Germany, where Wirecard is headquartered, remains the growth engine of Europe and an increasingly crucial source of stability and leadership on the world stage.

Meanwhile, the majority of analysts — including those at Investing Daily — are calling for a correction in U.S. stocks in 2017, another compelling reason to diversify overseas. Adding a European equity to your portfolio isn’t just a growth play; you should also consider it a hedge.

Storm clouds over Washington…

Jim Pearce, chief investment strategist of our flagship publication Personal Finance and chief of portfolio strategy for Investing Daily, sums up the risks at home:

“I am expecting a stock market correction. And it could be soon, once enough investors realize that many of the anticipated economic benefits from President Trump’s pro-growth legislative agenda are unlikely to materialize later this year, if ever.”

Despite mounting uncertainty, there are still plenty of investment opportunities in the U.S., especially in the resurgent energy patch. (I explore an exciting fracking industry play below.)

But in the meantime, don’t lose sight of the fact that many Europe-based, blue-chip transnational corporations now boast cheap valuations, even though they enjoy strong projected earnings growth and rock-solid balance sheets.

Last week, the World Bank released its annual Global Economic Prospects report and the prognosis for Europe is surprisingly upbeat. For 2017, growth in developed countries is estimated to strengthen to 1.9%, with growth in Europe and Central Asia accelerating broadly to 2.5%. Growth in the United States is pegged at 2.1%.

These forecasts bode well for Wirecard, Europe’s biggest credit card processor. With a market cap of $7.6 billion, the company offers information technology solutions for electronic payment transactions worldwide. The company does business via three divisions: Payment Processing & Risk Management, Acquiring & Issuing, and Call Center & Communication Services.

Wirecard’s vertically integrated payment processing solutions include Wirecard Checkout Page, a payment page; credit card processing; direct debit; online banking payment; international payment processing; and point of sale terminals.

According to McKinsey & Company, revenue from global payment transactions will grow by 8% through 2018, at which point annual revenue will reach $2.3 trillion and represent 43% of all banking-services revenue, compared with only 34% in 2009.

The digital wallet revolution…

Competition is ferocious in the booming mobile payments market, which research group eMarketer projects will be worth $314 billion by 2021 in retail transactions alone.

Wirecard continues to stay ahead of the technological curve in the fast-evolving mobile payments processing space, which is getting crowded with the likes of PayPal (NSDQ: PYPL), Alphabet’s (NSDQ: GOOGL) Google Wallet, and Apple’s (NSDQ: AAPL) Apple Pay.

In May, Wirecard brought its “boon” app to Apple Pay users in Italy. Powered by Wirecard, boon is a contactless digital mobile payment app that offers Apple Pay independently from any bank or telecom operator. Italy is the fifth European market in which Wirecard now offers its boon system, after the U.K., France, Switzerland, and Ireland.

Also in May, Wirecard added a shipping tool called SendCloud to its checkout portal that dramatically streamlines the online shopping process for retail customers, especially in regard to package returns and tracking.

Most of Wirecard’s activities are online, which keeps costs low and margins high. On May 18, the company reported that its first-quarter fiscal 2017 earnings after tax jumped by 32.5% to 48.5 million euros from 36.6 million euros in the same quarter a year ago. Earnings before interest, tax, depreciation and amortization (EBITDA) increased on a year-over-year basis by 31.1% to 81.3 million euros.

Wirecard’s revenue in the first quarter increased by 31% to 274.9 million euros from 210.5 million euros in the same year-ago quarter. Transaction volumes processed through the Wirecard platform grew by 34.4% to 17.2 billion euros from 12.8 billion euros. Management confirmed its forecast for 2017 EBITDA of between 382 million and 400 million euros.

From Europe to Asia…

The company’s recent forays into the healthiest emerging markets, notably in Asia, should continue to pay off in 2017 and beyond.

According to McKinsey, the Asia–Pacific region is poised for outsized growth in payment transaction revenue. China now accounts for the largest share of payments revenues, at 40%.

Despite Wirecard’s robust operating results and optimistic guidance, the company’s stock is on the bargain shelf, with a trailing 12-month price-to-earnings ratio (P/E) of only 25.3, compared to the more expensive trailing P/Es of major peers Visa at 46.6, Mastercard (NYSE: MA) at 31.5, and Tyler Technologies (NYSE: TYL) at 52.7.

Among the analysts who follow Wirecard, 19 recommend “buy,” 6 are “hold” and only one is “sell.” Goldman Sachs (NYSE: GS) is among the major analysts that have issued a buy rating for the stock.

Get an investment foothold in a recovering Europe, with added growth impetus from Asia, via this payments processing stalwart.

If you have any comments or questions, send your emails to: mailbag@investingdaily.com. I reserve the right to edit letters for the sake of clarity and/or concision. — John Persinos

Mr. Sandman, bring me a dream…

As I’ve just explained, Europe is an often overlooked investment destination that should appeal to value investors. But the U.S. is still home to affordable growth opportunities, if you know where to look. Consider the energy sector, which has finally bounced back from a long slump.

Some energy plays aren’t obvious to the investment herd and those are the kinds of plays we like best. One underappreciated moneymaking opportunity is in sand — that’s right, sand.

In the fracking industry, treated sand is a “proppant” designed to keep an induced hydraulic fracture open, during or following a fracturing treatment.

OPEC’s recent accord on production cuts is yet another sign that the fracking boom has long-term momentum. Frac sand is an intrinsic part of the fracking process; as such it’s a pick-and-shovel play on energy’s continued recovery.

An advanced, high-purity sand compound known as Augmented SiO2 is being used to tap the underground riches of the second largest oil field on the planet. This material is so crucial to the fracking process that some oil producers are paying up to five times the normal price for it.

You’re not hearing about it in the financial press, but this new “wonder” compound already is creating the next wave of energy millionaires. Click here now for all the details.

 


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