- CNBC's Jim Cramer said Wednesday he believes investors should look to add exposure to what he's calling "nouveau banks."
- Two of those companies — PayPal and SoFi Technologies — are worth buying right now, the "Mad Money" host said.
- However, he said it's best to wait for a pullback in Affirm and Upstart before buying their stocks.
Some of the nation's largest traditional banks are reporting earnings this week, prompting CNBC's Jim Cramer on Wednesday to review the investment case for the tech-driven companies that are seeking to disrupt legacy players in finance.
The "Mad Money" host dubbed the following six companies "nouveau banks": PayPal, Square, Upstart, Affirm, Robinhood Markets and SoFi Technologies.
"It's a good time to get some … nouveau bank exposure," Cramer said, because expectations for Wall Street banks are high coming into earnings season. That means their stocks could get hit if results don't smash expectations, he said, like JPMorgan Chase on Wednesday.
"If the rest of them go like JPMorgan … then it's possible we could have still one more exodus from the straight financials and one more love affair with the fintechs," Cramer said.
Here's how Cramer would play the landscape:
Buy it now
Cramer said PayPal and SoFi are worth buying right here.
PayPal has done a great job expanding its products to include new offerings such as adding a buy now, pay later platform, Cramer said, as well as offering cryptocurrency trading and high-yield savings accounts through a Synchrony Bank partnership.
"While the stock remains expensive here, I think it's worth buying now that it's down 17% from its highs, which is why we added some for the charitable trust last week."
SoFi, led by CEO Anthony Noto, also has a range of services that now includes selling insurance policies, brokerage accounts and mobile cash management, Cramer said. "SoFi is well on its way to obtaining a banking charter, too," he added.
However, SoFi's stock has struggled to gain traction since the company completed a reverse merger to start trading on the Nasdaq in June. Even as SoFi benefited from Morgan Stanley analysts rating its stock a buy, "it's still down nearly $10 from its highs earlier this year," Cramer said.
The other guys
Cramer said he finds Square "enticing" now that the company — which offers peer-to-peer payments, small business loans and equity and crypto trading — has seen its stock fall about 16% from its August highs.
However, he said, "I like PayPal more than Square because it's cheaper."
Upstart, a loan originator that uses artificial intelligence to facilitate the process, should be on investors' shopping lists, Cramer said. But with the stock up 746% year to date, "wait for a pullback and then you pull the trigger," he said.
Similarly, Cramer said he believes investors should wait for a bit of decline in shares of Affirm , a leader in the increasingly popular buy now, pay later space that's scored high-profile deals with Amazon, Walmart and Target.
Robinhood, a pioneer in zero-commission trading, has big ambitions to become a "single money app" for consumers, Cramer said. Even so, Cramer said it'll take time to get there, plus the top U.S. securities regulator is looking into its core business model of payment for order flow.
"While Robinhood is not my favorite, it's way too important to ignore," Cramer said.
Disclosure: Cramer's charitable trust owns shares of Amazon, Morgan Stanley and PayPal.
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