Three Stocks to Watch for the Week of August 2nd

Although volatility has picked up amid concerns about the economic recovery in the face of rising infection rates, the major averages managed to wrap up July with solid gains.  The Nasdaq and the Dow both added around 1.25% for the month, while the broad S&P 500 gained close to 2.3% over the same period.  Utilities, technology, real estate, and health care have led the S&P 500 higher for the month, while energy and financials have lagged.   

“There has been quite a bit of volatility and price choppiness in the market in recent weeks,” said Brian Belski, chief investment strategist at BMO. “Increased concerns over the delta variant and its potential implications for reopening momentum seemed to play a key role in the price action, while peak themes related to economic growth, earnings, and policy support also remained an overhang on risk sentiment.”

All signs point to the pace of economic growth having slowed late in the second quarter, as reflected in quarterly reports from several companies, including Amazon (AMZN), which saw its first quarterly miss in three years.  

This week, hundreds of small-to-mid-cap companies across all sectors will report results.  Those smaller companies are very sensitive to changes in the economic temperature.  Investors should look for clues in their guidance for the rest of the year.  

With current conditions in mind, our team has a few recommendations for stocks to watch next week, including one astounding value that you might kick yourself for missing out on.  Continue reading to find out who.

While most industries suffered significantly amid the pandemic, the fintech space thrived.  And thanks to the spread of the hyper-contagious variant, rising infection rates in several countries could spur demand for fintech solutions for the foreseeable future.  Beyond that, in a post-pandemic world, the adoption of fintech is likely to stick as many consumers have found that they prefer the convenience offered by these cashless solutions.  According to the ExpressWire report, the fintech market is expected to grow at an 8.6% CAGR between 2021 – 2024.

San Francisco based SoFi Technologies, Inc. (SOFI) operates through its own financial services and technology platform.  The company offers student loans, personal loans for debt consolidation and home improvement projects, and home loans. It has been expanding its portfolio of offerings in the wake of the pandemic.  

So far, SoFi users have seemed to like the offering expansion.  In Q1, which ended March 31st, the company reported that user growth had increased 110% year-over-year to 2.8 million.  What’s more, the total products used increased by over 120% in the same time period.  Plus, the company noted that multi-product members were growing at almost 100% YOY in their investor presentation.  All of this shows that SoFi users are starting to expand their usage to more than one product, which is a testament to their loyalty and stickiness to the platform.

Last month the company launched a brand new loan program aimed at making things easier for the borrower.  SoFi’s CEO, Anthony Noto, commented, “We’re always looking for new and creative ways to help people pursue their path toward financial independence.  This is another example of how we’re supporting members in getting their money right.” 

For its fiscal year 2022, analysts expect SOFI’s revenue to increase 51.8% year-over-year to $1.49 billion.  In addition, its EPS is expected to grow 63% in its fiscal year 2022.  SoFi also has very large growth projections that, if investors believe management can achieve them, would price SoFi relatively cheap when looking at forward valuation.

Considering the stock is down 40% from its all-time highs and down nearly 20% over the past month, investors could see this as a great opportunity to pick up some shares at a nice price.  Wall Street analysts expect SoFi to hit $27.50 in the next 12 months, which indicates a potential 78% upside from its current price.  The company is expected to release second-quarter financial results on August 12th.

Paris based TotalEnergies SE (TTE) produces and markets energies including oil and biofuels, natural gas and green gases, renewables, and electricity.  Globally, it is among the largest producers of liquified natural gas (LNG), which is expected to increase in usage globally as efforts towards emission reduction increase. This bodes well for TTE, which has a significant presence in the value chain of LNG.

TotalEnergies is also gradually doing what it can to cut emissions from the mobility space and expand its transportation presence.  The company is developing EV charging infrastructure in Europe and has plans to install more than 150,000 EV charge points by 2025.  TTE has set an objective to have net-zero carbon emissions by 2050 and is making great strides to meet that target.  

TotalEnergies recently partnered with Veolia Environment (VEOEY) to develop microalgae with the long-term objective of producing biofuel, which will be utilized by customers who are attempting to reduce their carbon footprint, thereby contributing to TotalEnergies’ ambition of achieving carbon neutrality by 2050.     

They are also gradually building their clean electricity generation portfolio.  Since 2011, the acquisition of SunPower Corp (SPWR) has been enabling the company to expand solar operations.  It now plans to scale up renewable generation capacity to 25 GW by 2025.  TTE targets to generate 40% of revenues in 2050 from low-carbon electricity sales.  

TTE has a low P/E ratio of 8.97, compared with 21.90 for the industry.  The current share price represents a P/B ratio of 1.2, which is lower than 76% of the companies in its industry, where the average P/B ratio is 3.0.  Considering this, TTE seems to be an incredible value right now.  The stock also sports a 6.56% annual dividend yield compared to the average energy stocks dividend of 3.2%  

One thing that caught our attention when it comes to TTE is the improving earnings outlook.  Over the past 60 days, the consensus estimate for 2021 earnings has risen more than 9%.  The 24 analysts offering 12-month price forecasts for TTE have a median target of $56.45, representing a 29% increase from its current price.   Of 28 analysts offering recommendations for TTE, 19 rate the stock a Buy, and 9 rate it a Hold.  There are no Sell ratings for the stock.   

Steel demand is growing within the manufacturing sector as the economic recovery gains steam.  Furthermore, President Biden’s infrastructure spending proposal, aimed at facilitating transformational growth in the U.S. economy, should provide significant tailwinds for the steel industry.  United States Steel Corporation (X) is well-positioned to benefit from growing demand as a top producer of sheet steel.   

U.S. Steel is an integrated steel producer with major production operations in the United States and Central Europe.  United States Steel manufactures a wide range of value-added steel sheet and tubular products for the automotive, appliance, container, industrial machinery, construction, and oil and gas industries.  An integrated steel producer uses iron ore and coke as primary raw materials for steel production.  United States Steel is also engaged in other business activities consisting primarily of railroad services and real estate operations.

At the start of the pandemic last year, steel mills were shut down to stop the spread of the virus among workers.  Also, end-users in various industries closed too, slashing steel demand.

With the post-pandemic reopening of the economy, a substantial rise in construction and industry activities should continue to boost the demand for steel. The global steel market is expected to reach $1.01 trillion by 2025, representing a 2.6% compound annual growth rate.

Now steel prices have soared as demand outpaces supply while steel producers race to get back online.  Trump-era tariffs, which President Biden is keeping for now, and hopes for an infrastructure bill, are also keeping steel prices high, edging toward pre-pandemic levels.

U.S. Steel stated that it expects to see second-quarter adjusted EBITDA that more than doubles its first-quarter performance.  Company execs envision adjusted EBITDA of around $1.2 billion and adjusted earnings per share of roughly $3.08 for the quarter.  Investors will be tuned into the Q2 call on July 29th to find out how they did.  

Of 13 analysts offering recommendations for the stock, 5 rate it a Buy, 6 rate it a Hold, and 2 rate X stock a Sell.  A median 12-month price target of $33 represents a 25% increase from here.  

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