By Nate Wolf

With payments stocks on track for their worst non-pandemic year since the Great Recession, investors should fall back on names with strong fundamentals in 2026, J.P. Morgan says.

Analysts at the investment bank moved to the sidelines on PayPal Holdings and Fiserv, downgrading both to Neutral from Overweight in a research note Thursday. Visa and Toast, on the other hand, are solid bets, the firm argued.

"For 2026, we're going back to basics to prefer names with pricing power, strong incremental margins, and front book velocity," wrote the analyst team led by Tien-tsin Huang. "We choose to steer clear of turnarounds."

Let's start with the laggards. J.P. Morgan downgraded PayPal a day after the company's finance and operations chief warned of sluggish growth in its branded checkout business. PayPal has long-term potential, Huang and his team said, pointing out investments in buy now, pay later and artificial-intelligence-driven "agentic commerce." But the company's breakout moment might come later than expected.

"While we still appreciate the ingredients PayPal is cooking with, it will take time for the bread to rise," the analysts wrote.

J.P. Morgan trimmed its financial estimates for PayPal through 2027 and lowered its price target for the stock to $70 from $85. Shares were down narrowly to $61.20 on Thursday, having fallen 28% this year as of Wednesday's close.

Fiserv, which has seen its shares plummet 67% in 2025, is a similar story. After over-investing in short-term growth initiatives, much-needed investments in service and technology will weigh on revenue and margins in 2026, J.P. Morgan said.

In Fiserv's third-quarter earnings print in late October, the company slashed 2025 guidance to an extent that left many shareholders reevaluating their investments. The reset led to an "emotional capitulation that we think will take time to heal," the J.P. Morgan analysts wrote.

Prior to the downgrade, the bank nearly halved its price target for Fiserv stock to $85 from $155 in October. Shares slipped 0.6% to $66.55 on Thursday.

On the bright side, investors looking to buy low on payments names have some options. J.P. Morgan upgraded point-of-sale provider Toast to Overweight from Neutral and set a $43 price target in Thursday's research note.

Investors may know Toast as the checkout platform at their local coffee shop or sandwich joint, and that is because it has built up a "unique brand affinity among restaurants," the analysts said. J.P. Morgan sees Toast maintaining some of the best growth in the industry while keeping expenses relatively low.

Toast stock has struggled in 2025, but rose 1.7% to $35.79 on Thursday, bringing shares close to flat for the year.

Visa, meanwhile, is J.P. Morgan's top pick in the payments space. Unlike many other names in the industry, the stock is up narrowly in 2025 along with Mastercard, the other half of the credit card duopoly.

The company is moving into blockchain-powered finance like stablecoins and tokenization, giving it exposure to agentic commerce, J.P. Morgan said. That innovation adds upside to a stock that is trading at a low long-term valuation relative to the S&P 500.

Visa stock gained 0.5% on Thursday, while Mastercard was down 0.2%.

Write to Nate Wolf at nate.wolf@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 04, 2025 10:35 ET (15:35 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.