3 Stocks to Watch for the Week of August 21, 2023

Hope you had a restful weekend.

The market pullback continued last week with the major indexes falling between 2–3%. The big tech stocks that had been leading the rally are pulling back the most – raising questions as to which sector will power the next leg up.

As for “why” the market is falling – as always, there are a number of possible reasons.

It could be the surge in Treasury yields draining liquidity from the stock market. It could be China’s deeper-than-expected economic woes. It could be the Fed minutes, which set the stage for higher-for-longer interest rates. 

Or it could just be a normal, healthy pullback in the middle of a broader rally.

Regardless of the reason, it doesn’t matter.

The purpose of today’s newsletter is to highlight 3 stock picks that could defy the market and keep surging this week…

And we’ll do that by looking at those that have already resisted last week’s negative momentum.

That said, we are in the middle of an extended pullback…

So, if you decide to act on any of these picks – make sure you mitigate your risk by scaling down your position sizes accordingly.

H&R Block, Inc. (HRB)

This tax preparation company’s stock has had an interesting trajectory this year. After initially rising at the start of the year, its stock basically just went downward from February till end May – before bouncing back and heading upwards in pretty much a straight line.

That upward trajectory has largely defied the recent pullback. And last week, its stock made a 12% jump on the back of fourth-quarter earnings that showed why this stock has a good chance of continuing to surge despite the gloomy market conditions.

The company announced a dividend increase – its seventh straight year – plus a rosy outlook for both revenue and earnings. Couple this with a still relatively low P/E ratio of 13x, and this stock could still keep running this week.

Bloomin’ Brands, Inc. (BLMN)

Casual American dining chain Bloomin’ Brands also saw a double-digit surge in its stock price last week after activist investor Starboard Value was found to have built up a more than 5% stake in the company.

Starboard Value’s filing indicated it believed BLMN’s shares – with both trailing and forward P/E currently standing at about 10x – were undervalued. Previously, Starboard had helped turn around Olive Garden parent company Darden as well as Papa John’s after taking a stake in both companies.

Fundamentally, BLMN’s growth has stagnated – with slow sales and falling foot traffic. But with Starboard coming on board, that could make its stock quickly go from fairly priced to underpriced. And that’s an opportunity.

SoundHound AI, Inc. (SOUN)

SoundHound is a small company that makes AI-powered voice assistants, primarily for the automobile industry. It’s also probably the riskiest pick on this list, being a company that is expected to keep unprofitably burning cash until at least 2025. No doubt, this company’s strong stock price performance – up 65% this year – has a lot to do with the AI buzz.

Still, SoundHound’s stock popped by 7% last week while most AI stocks were pulling back. This was on the back of an analyst who proclaimed a $7 price target on SoundHound’s stock (which is currently trading at $2.16). Around the same time, the company also launched a new service called Smart Answering, which enables businesses to use AI for customer service calls.

The combination of the two could lead to SoundHound’s stock continuing to gain this week. But as we said, this is the riskiest pick – so adjust your position sizing accordingly.

To your wealth,
Felix @ Ace of Investing