How To Earn 8.9% Yield While Waiting to Buy FISV 40% Cheaper
At about $68.0 a share, Fiserv (FISV) is trading about 71% below its 52W high.
Do you think FISV stock is a good long-term bet at current levels? What about at a 40% discount at about $40 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
8.9% annualized yield at 40% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 12/18/2026, with a strike price of $40
- Collect roughly $195 in premium per contract (each contract represents 100 shares)
- That’s about 4.9% annualized yield on the $4,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 8.9%
- And you give yourself a chance to buy FISV stock at deep discounted price of $40
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| FISV stays above $40 | You keep the full $195 premium – 4.9% extra income over the next 365 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| FISV closes below $40 | You’ll be obligated to buy 100 shares at $40. But thanks to $195 premium, your effective cost basis is just $38.05 per share – a roughly 44% from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell FISV Stock or check Fiserv Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.
Why Hold FISV Stock Long-Term
Fiserv operates in an oligopolistic market and is deeply integrated into the financial system, providing mission-critical services. The company is a key player in the secular shift towards digital payments and has a strong, recurring revenue model. While facing near-term challenges and increased competition, its entrenched position and the high switching costs for its core banking clients provide a durable competitive advantage. The recent stock price decline may present an attractive entry point for a long-term compounder.
Competitive Advantage
We classify FISV’s economic moat as WIDE, with the primary source being Switching Costs
- More than 80% of Fiserv’s income is from payment processing and services under multi-year contracts with high renewal rates, indicating significant customer lock-in.
- Recent price increases for the Clover point-of-sale system led to customer dissatisfaction and churn, with small businesses seeking cheaper alternatives.
See Fiserv Full Analysis.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 13.7% (Allied Market Research)
Secular Trend: Digitalization of Payments
Key Risks: Intense competition from other fintech companies like Block and Shopify, and the potential for technological disruption from innovations such as blockchain and AI.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: The company has a significant net debt position, which has increased in recent years. However, it generates substantial free cash flow, which is expected to be around $5 billion annually, and has a history of returning cash to shareholders through buybacks.
Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.
Portfolios Win When Stock Picks Fall Short
Stocks soar and sink – the key is staying invested. A balanced portfolio keeps you in the market, boosts gains and reduces single stock risk
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.