As the calendar turns to October, millions of Americans will have to manage the return of student loan payments. As a refresher, the Trump administration enacted a moratorium on student loan payments at the onset of the pandemic in March 2020.
That moratorium remained in force until Congress passed the Fiscal Responsibility Act in June 2023. At that time, borrowers were told that payments would resume in October 2023.
Many consumers are already feeling the pinch from sticky inflation and higher interest rates. That has analysts rightly concerned about what the effect of the repayments will mean for the economy and the stock market.
Like many things, the answer depends on what parts of the economy and which stocks you're interested in. With events like these, there are always leaders and laggards. The trick is to ensure you're buying the former and avoiding the latter. Here are seven stocks that investors should consider buying to take advantage of market conditions surrounding the return of student loan payments
Quick Links
- SoFi Technologies
- SLM
- Lending Club
- Upstart
- Etsy
- DraftKings
- Dollar General
#1 - SoFi Technologies (NASDAQ:SOFI)
Prior to the pandemic, SoFi Technologies, Inc. (NASDAQ: SOFI) was synonymous with student loans. The company is one of the original “fintech" (financial technology) companies, and student loans are a large part of the company's business model.
But this is not the same SoFi that existed prior to the pause on student loans. The company received its bank charter in 2022. That didn't help SOFI stock, which dropped from over $15.80 a share at the end of 2021 to under $5 a share early in 2023.
It's been a different story in 2023 with SOFI stock over 73%. And much of that gain has occurred since the passage of the Fiscal Responsibility Act. Still, there are some concerns that investors need to evaluate the stock as an overvalued bank stock rather than as a fintech stock.
However, the other argument is that SoFi's digital-first approach aligns with its core customer base that demands, and expects, a digital solution for their banking. Viewed with that lens, SoFi is still an undervalued fintech company that also happens to be a bank.
Analysts won't be that much help. The SoFi analyst ratings on MarketBeat give the stock a consensus Hold but have a price target that's 15% higher than its price as of October 2, 2023.
About SoFi Technologies
SoFi Technologies, Inc provides various financial services in the United States, Latin America, and Canada. It operates through three segments: Lending, Technology Platform, and Financial Services. The company offers lending and financial services and products that allows its members to borrow, save, spend, invest, and protect money.
Read More - Current Price
- $7.01
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $9.14 (30.4% Upside)
#2 - SLM (NASDAQ:SLM)
Like SoFi, SLM Corporation (NASDAQ: SLM) is one of the leaders in the student loan sector. However, SLM stock is down 18% in 2023. But this has been a much more volatile ride for investors as the stock is up 8.8% in the last six months but down 17% in the last three months.
A quick look at the company's earnings reports may explain the volatility. The company beat on earnings in the first quarter of the year. However, it missed earnings expectations in the second quarter, and the $1.10 in earnings per share was lower than the $1.29 the company posted in the same quarter in 2022.
Whereas SoFi is definitely a growth stock, SLM presents investors with a value proposition. It has a forward P/E of just over 5x, which is consistent with many bank stocks. It also has a dividend with an attractive yield of 3.25%.
With that said, this profitable company expects to grow earnings by 3.4% in the next 12 months. And analysts tracked by MarketBeat forecast a 32% upside for SLM stock.
About SLM
SLM Corporation, through its subsidiaries, originates and services private education loans to students and their families to finance the cost of their education in the United States. It is also involved in the provision of retail deposit accounts, including certificates of deposit, money market accounts, and high-yield savings accounts; and interest-bearing omnibus accounts.
Read More - Current Price
- $20.14
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $24.00 (19.2% Upside)
#3 - Lending Club (NYSE:LC)
Lending Club Corporation (NYSE: LC) is an online lender that specializes in unsecured personal loans. It's not a student loan provider, but it may fill a valuable niche as borrowers look to refinance high-interest loans. The company's business model allows borrowers to take a personal loan of up to $40,000 for virtually any reason.
And in 2023, there could be several reasons. Even if borrowers don't want or need to refinance their student loans, they may seek to consolidate their burgeoning credit card debt.
This theory may be playing out in the company's earnings forecast, which shows a 25% gain in the next 12 months. Analysts are even more bullish, forecasting a 98.9% upside for the stock.
That would be welcome news for Lending Club, which has seen a sharp YOY decline on the top line and bottom line in the last two quarters. The stock is also down 31% in 2023 and 13% in the 30 days ending October 2, 2023.
About LendingClub
LendingClub Corporation, operates as a bank holding company, that provides range of financial products and services in the United States. It offers deposit products, including savings accounts, checking accounts, and certificates of deposit. The company also provides loan products, such as consumer loans comprising unsecured personal loans, secured auto refinance loans, and patient and education finance loans; and commercial loans, including small business loans.
Read More - Current Price
- $10.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $13.07 (19.4% Upside)
#4 - Upstart (NASDAQ:UPST)
Unlike the first three stocks on this list, Upstart Holdings, Inc. (NASDAQ: UPST) does not provide banking services. This is strictly an online lender. And the cautionary note for Upstart is that the interest rates range from 5.99% to a punitive 32%. But as I wrote about Lending Club, Upstart may benefit from consumers' need to refinance credit card debt.
UPST stock is up 110% in 2023, and much of that is probably due to two words: artificial intelligence. The company promotes its use of AI to fine-tune its lending standards. The result, in theory, is that the company will have fewer defaults because it will better predict an applicant's ability to pay.
On the one hand, Upstart believes it will be able to qualify borrowers who might otherwise not be able to qualify. On the other hand, critics will say that it's too early to tell if this is truly minimizing defaults or just an example of AI being used because it can be. It's too early to tell, but UPST stock is still worth some consideration.
About Upstart
Upstart Holdings, Inc, together with its subsidiaries, operates a cloud-based artificial intelligence (AI) lending platform in the United States. Its platform includes personal loans, automotive retail and refinance loans, home equity lines of credit, and small dollar loans that connects consumer demand for loans to its to bank and credit unions.
Read More - Current Price
- $34.40
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 7 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $26.75 (22.2% Downside)
#5 - Etsy (NASDAQ:ETSY)
There are two sides to managing the resumption of student loans. The first four stocks in this report deal with how debtors can directly manage their loan payments. Etsy, Inc. (NASDAQ: ETSY) presents another alternative. That is managing rising debts by increasing income.
This mindset was on display in 2020 and 2021. Many people started new businesses as a primary or secondary source of income. That may have been done out of necessity as many people had no job to go to. But whatever the motivation, it may be time to dust off that playbook again. And Etsy is one option.
ETSY stock is down about 43% in 2023. But that may not reflect the company's revenue and earnings, which continue to show strength. At 23x earnings, some analysts may view ETSY as being overvalued. But with the stock trading near a 52-week low, it could be an opportunistic buy in the fourth quarter of 2023 and beyond.
About Etsy
Etsy, Inc, together with its subsidiaries, operates two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, and France. Its primary marketplace is Etsy.com that connects artisans and entrepreneurs with various consumers. The company also offers Reverb, a musical instrument marketplace; Depop, a fashion resale marketplace; and Elo7, a Brazil-based marketplace for handmade and unique items.
Read More - Current Price
- $53.19
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 12 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $70.61 (32.7% Upside)
#6 - DraftKings (NASDAQ:DKNG)
Another stock that addresses the income side of the equation and may benefit as student loan payments resume is DraftKings, Inc. (NASDAQ: DKNG). Investors may find sin stocks polarizing. But the opportunity in this sector is one that investors shouldn't quickly ignore.
In 2023, sports betting revenue is likely to exceed all prior years. That's not surprising as every year more states legalize sports betting. That number currently stands at 31 states. However, that number will assuredly increase with the potential tax benefits for state and local governments.
And for individuals looking to increase their income potential, sports betting is an option that investors should keep an eye on. Among sports betting stocks, DraftKings is a popular option. In late September 2023, JPMorgan Chase & Co. (NYSE: JPM) gave DKNG stock an Overweight rating with a $37 price target. That's higher than the consensus estimates of around $33 per share.
About DraftKings
DraftKings Inc operates as a digital sports entertainment and gaming company in the United States and internationally. It provides online sports betting and casino, daily fantasy sports, media, and other consumer products, as well as retails sportsbooks. The company also engages in the design and development of sports betting and casino gaming software for online and retail sportsbooks, and iGaming operators.
Read More - Current Price
- $35.11
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $49.52 (41.0% Upside)
#7 - Dollar General (NYSE:DG)
Inflation and rising interest rates are whacking consumers in several ways. Still, data shows that consumers continue to spend on staple items. Nevertheless, they'll still be looking for bargains, which means looking for discount retailers.
That bodes well for Dollar General, Inc. (NYSE: DG). Like many retail stocks, DG stock has been battered in 2023. It's currently down 57%, and its earnings are down YOY for the last two quarters. But at 13.8x forward earnings, this seems to be a case of a stock that is simply oversold.
Issues like retail theft and lower total spending by consumers may continue to weigh on retailers. However, Dollar General has a business model that keeps stores in strategic areas not serviced by big box retailers. That may allow it to capture the thrifty consumer who is looking to save on both gas and groceries. Plus, the company continues to build new stores and renovate existing ones.
About Dollar General
Dollar General Corporation, a discount retailer, provides various merchandise products in the southern, southwestern, midwestern, and eastern United States. It offers consumable products, including paper and cleaning products, such as paper towels, bath tissues, paper dinnerware, trash and storage bags, disinfectants, and laundry products; packaged food comprising cereals, pasta, canned soups, fruits and vegetables, condiments, spices, sugar, and flour; and perishables that include milk, eggs, bread, refrigerated and frozen food, beer, and wine.
Read More - Current Price
- $82.58
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $113.95 (38.0% Upside)
The resumption of student loan payments is another headwind in a market that doesn't need any more of them. In fact, many stocks are trading at their lowest level since October 2022. But investors would do well to remember what happened in early 2023. The market turned around. And investors who weren't in the market at that time missed the largest gains of the year.
With that said, you know there are no guarantees in the market. But understanding where opportunities may be can help position you for what's to come. For example, investors who bought energy stocks earlier this year are reaping the benefits right now.
It's too early to tell if the same growth will happen with the stocks in this presentation, but there are reasons to believe they may. And now is the time to add them to your watchlist or even to start building a position as your circumstances allow.
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