Three Stocks to Watch for the Week of September 6th

September started nicely for equity investors as the Nasdaq and the S&P 500 topped new record highs several times last week.  Defensive sectors and tech stocks led gains as industrials and financials lagged.  

The corporate calendar will be relatively quiet this week, with Q3 earnings still three weeks away.  The economic calendar, however, will be quite busy.  The U.S. Department of Labor will release its July JOLTS (Job Openings and Labor Turnover Survey) report on Wednesday.  Plus, producer prices for August will be released on Friday.

The economy has been running hot for much of this year, but recent data are signaling that a patch of more tepid growth may be on the way. The rate of U.S. GDP growth has peaked, and the impacts of the virus resurgence have spurred concerns of a fading recovery.  Several analysts view this as a midcycle slowdown that will prove temporary.  

Some speculate that September will bring several attractive buying opportunities, and our team has a few ideas of stocks to add to your watchlist.  

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Leading Brazilian fintech company StoneCo Ltd. (STNE) provides back-office software, loans, and other financial services to small and medium-sized businesses, focusing on reinvesting the cash it generates to acquire or build new financial products for its customer base.  Since early 2019, the company has grown the number of small and medium business clients by 3x, revenue by 2.3x, and net income by 2.2×. 

StoneCo felt the pinch earlier this year when Brazil went through a second wave of Covid that resulted in imposed commerce restrictions in several cities throughout the country.  These restrictions were felt by STNE clients, with average total payments volume reaching a low in March.  

The pandemic’s impact on small and medium businesses in Brazil has been severe, especially for the many retailers who are only now adopting an e-commerce strategy.  In the first half of 2021, StoneCo increased loss provisions on its lending product, and overall growth has slowed. 

StoneCo stock has decreased a whopping 46% since the start of the year.  In terms of COVID recovery opportunities, it might be one of the most “coiled” because the impact on Brazilian small businesses has been so traumatic. Still, once vaccinations are scaled, the economic recovery will be fast – although delayed.  

The stock’s decline this year was not surprising, but investors are now ignoring the progress that has enhanced StoneCo’s position for coming out much stronger when the recovery begins.  

In addition, StoneCo is part of a much larger and fast-moving transition happening in Brazil around the digitization of financial services.  The speed of this transition is unique to Brazil because the Central Bank is actively trying to reduce the country’s previous dependency on a small handful of large banks. 

Important progress in the first half of 2021 included closing on the long-awaited acquisition of Linx, a mature provider of enterprise software with a large footprint across Brazil.  The acquisition will provide Stone meaningful cross-selling opportunities and a more diversified customer base. 

The 17 analysts polled mostly agree that STNE is currently a Buy.  10 give the stock a Buy rating, and 7 say to Hold StoneCo stock.  There are no Sell ratings.  The median 12-month price target of $77.47 represents a 73.59% increase from the current price.  

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Netherlands-based NXP Semiconductors (NXPI) supplies semiconductor and related products to industrial, mobile, and communications infrastructure industries and is an especially heavy player in the automotive industry.  The company is benefiting from strong demand for its chips, particularly from automakers.

Its revenue from automakers soared 87% year-over-year in the second quarter. Overall, NXP’s Q2 sales jumped 42% YOY and 3% versus  Q1.  Its free cash flow came in at $486 million.

Going forward, the chipmaker should continue to be boosted by the increased use of chips in vehicles and by the proliferation of EVs in Europe and elsewhere.

NXPI announced a collaboration with insurance technology company MOTER Technologies, Inc., in July to analyze deep data and provide insurance for automotive vehicles. The partnership should consolidate NXPI’s market reach in the automotive industry.

On June 29, NXPI agreed to a collaboration with Jio Platforms Ltd., the largest network service provider in India, for the use of  NXPI’s processors for Jio’s 5G platform. Regarding the collaboration, Tareq Bustami, Senior Vice President and General Manager, Network Edge at NXPI, said, “The collaboration with Jio to develop, test and deploy 5G solutions underscores the power of our Layerscape products and the growing ability of NXP’s antenna-to-processor portfolio to accelerate new 5G deployments.”

Trading at a market capitalization of $57 billion, NXPI stock, which has more than tripled since the end of 2018, likely has much more room to climb.  

Of 29 polled analysts, 19 give NXPI a Buy rating, 9 say to Hold the stock, and only 1 says to Sell.  A median 12-month price target of $235 represents a 10.75% increase from its current price.

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Vertex Pharmaceuticals (VRTX) is the undisputed leader of cystic fibrosis therapies.  Its portfolio of approved CF drugs will deliver the company at least an estimated $7.2 billion this year, made possible by an intense level of market penetration and decades-long devotion to research and development in the space. 

So far, the company hasn’t had trouble convincing regulators that its drugs are safe and effective for wider and wider populations of patients.  It has also managed to remain strongly profitable and continued to expand revenue within the CF market.

If management’s plans for expanded approvals for younger age cohorts continue to come to fruition over the next few years, Vertex will eventually be treating as many as 90% of all people with CF.  That means investors can look forward to a steadily increasing drumbeat of new revenue and expanded approvals, both of which should buoy the stock’s price significantly.   

Furthermore, the company is moving its pipeline beyond CF with a handful of mid-stage clinical programs for kidney diseases, genetic hematologic disorders like sickle cell disease, and pain relief.  In other words, even if it eventually completely corners the entire market for CF therapies, there will still be other opportunities for growth.  And over the next decade, that’s bound to enrich investors.

Patience is key when it comes to biotech and pharma investing.  It takes an average of 7 years to make a drug and get it approved by regulators.  So, you might need to hold a biopharma stock longer than you would something from another sector.  We believe that VRTX seems likely to reward patient investors as the steadily growing biopharma company seems ripe for expansion for years to come.  

Of 27 analysts offering recommendations for VRTX, 21 rate the stocks a Buy, 5 rate it a Hold, and only 1 rates the stock a Sell.

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