Top Picks 2016: Square

01/22/2016 7:00 am EST

Focus: STOCKS

Timothy Lutts

Publisher, Cabot Heritage Corporation

Our Top Pick for growth investors is a bet on the continuing evolution of payment systems, away from cash, and toward more democratic systems, explains Timothy Lutts, editor of Cabot Stock of the Month.

Under this approach, everyone—in any kind of business—has the capability of accepting electronic payments and credit card charges.

In the case of Square (SQ), the visible part of the service is a small plastic square that plugs into a user’s phone or tablet and captures credit card data.

But the more powerful part of the service is the software (in the cloud, of course) that takes care of digital receipts, inventory, and sales reports, as well as providing analytics and feedback.

In short, it empowers a businessperson to manage his business more effectively.

The company was founded in San Francisco in 1999 and pulled in revenues of $850 million last year, up 54% from the year before; that’s great growth.

But the company is not yet profitable and may not be until 2017; management is too focused on growth.

Speaking of management, that’s my other reason for liking the stock. Square’s founder and CEO is Jack Dorsey, better known as the CEO of Twitter (TWTR).

The stock came public on November 19 at $9, traded above $14 on its first day, but then pulled back to build a good base at $12 through most of December.

Heading into the new year, the stock appears to be developing a slight upward bias—certainly there are no motivated sellers—and I think the year ahead could be very good for the stock, as more and more investors discover both it and the Square service.

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