Three Stocks to Watch for the Week of October 11th, 2021

Last week started on a down note, but stocks rallied late in the week after congress reached an agreement on the debt ceiling.  The S&P 500 closed the week nearly 1% higher.  The Nasdaq rose 0.6%, and the Dow tacked on 1.25%.  The small-cap dominant Russell 2000 closed the week 0.35% lower.  

Q3 earnings season officially kicks off this week with big banks JPMorgan (JPM), Goldman Sachs (GS), and Wells Fargo (WF) reporting Wednesday.  Investors will be looking for answers this season on how severe the impact of supply chain disruptions has been. 

 We’ll also get news about the economy’s recovery with data on retail sales and job openings.  The  Labor Department’s JOLTS report for the month of August is due out on Tuesday, and on Friday, Retail Sales numbers for September will be released.

The upcoming week should be exciting, with plenty of economic and Q3 earnings data for markets to process, which could mean more volatility ahead.  Nevertheless, our team has a few recommendations of stocks to add to your watchlist with current conditions in mind.  Continue reading to find out which three stocks we’ve got our eyes on this week. 

 

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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 with a focus 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 59% 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 with 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 an 81.22% increase from the current price.  

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Cintas (CTAS) provides corporate uniforms and apparel, as well as first aid, safety, cleaning, and restroom products and services. The company leads the market in the $25 billion uniform rental space and is poised to benefit as offices welcome back employees with a heightened focus on safety and cleanliness.  Increased emphasis on hygiene due to Covid should increase the adoption of facility services and the propensity to outsource uniforms. 

“Reopening and focus on Health, Hygiene, and Safety due to COVID and ESG has driven increased demand for Commercial Services. In particular, solid demand for cleaning/disinfecting solutions and a greater propensity to outsource facility, uniform rentals, and food services should drive solid growth for Commercial Service providers,” RBC’s Ashish Sabadra and John Mazzoni said in a report last week.

The company’s scale provides advantages in operating leverage, which should help combat inflationary pressures.  Meanwhile, potential growth opportunities in healthcare, education, and government organizations should help CTAS expand its customer base.

Of 16 polled analysts, 8 rate the stock a Buy, 6 rate it a Hold, and 2 rate it a Sell.  A median 12-month price target of $450 represents a 6% increase from its current price.   

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Fortune 500 company Fiserv (FISV) provides digital commerce services, fraud protection, digital banking, credit card processing, electronic billing products, and other products and services.  In other words, it’s a one-stop shop for all that a financial institution or insurance company needs to manage the flow of money coming in and going out of their business.  The fintech company serves businesses, banks, credit unions, other financial institutions, merchants, and corporate clients across the globe. 

The company recently reported second-quarter earnings on July 27th, results showing 43% second-quarter growth in revenue year-over-year for the company’s merchant-acceptance unit. That performance comes on top of a near-doubling in payment volume for the company’s key Clover point-of-sale technology.

For the April-through-June quarter, the Brookfield, Wis.-based processing giant “saw a strong recovery in the United States with uneven recovery around the world,” pronounced chief executive Frank Bisignano during a call with equity analysts.

In the key independent software vendor market, where technology companies embed payments capability into releases they’re preparing for vertical markets, Fiserv saw a 122% growth in volume for the quarter compared to the prior year.  That was driven by 53 new ISV signings, bringing to 95 the number signed for the year so far, Bisignano said.  As with many operating statistics, the company did not release absolute figures.

Fiserv’s progress wasn’t confined to small merchants.  Carat, a unit the company launched in November to sell coordinated digital payments and related commerce services to large companies looking to serve Covid-wary consumers, racked up gains in the quarter, as well.  Bisignano said that ten of the country’s largest convenience-store chains are now using Carat, along with nine of the 10 biggest grocers.  All told, the unit has generated $2.5 billion in payment volume so far this year.

In total, the merchant-acceptance division recorded $1.67 billion in revenue for the quarter, bringing its first-half revenue to $3.06 billion, up 22% over the first half of 2020.  That was enough to overtake Fiserv’s payments and network segment, which logged $1.43 billion in revenue for the second period, up 7%.

As far as guidance from the company is concerned, Fiserv raised the lower end of its 2021 outlook and now expects revenue growth of 10% to 12%.  Adjusted earnings per share are currently anticipated in the range of $5.50 to $5.60 compared with the prior guidance of $5.35 and $5.50.  This positive outlook adjustment is a solid indicator that the company is seeing greater than expected client base and demand growth.  

Wall Street seems optimistic about FISV too.  Of 32 polled analysts, 27 rate the stock a Buy, and 5 rate it a Hold.  There are no Sell ratings for FISV.  A median price target of $141.50 represents a 31% increase from its current level. 

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