Three Stocks to Watch for the Week of June 27th, 2022

The major averages wrapped up a big comeback week for stocks,  snapping three-week losing streaks as market participants tried to determine whether markets had found a bottom. The S&P 500 gained nearly 6.5% for the week, while the Nasdaq Composite rose 7.5%. The Dow finished the week 5.4% higher.  Still, many on Wall Street maintained a gloomy outlook.

“We believe that the bounce in U.S. equity markets over the past three trading days has been a bear market rally off deeply oversold conditions,” Wolfe Research’s Chris Senyek wrote in a Friday note.

“While there may be some additional near-term follow-through, we believe that our intermediate-term bearish base case remains intact and that the next leg down is going to be driven by rising recession risks and downward earnings revisions,” Senyek added.

Market watchers will be looking for clues on the state of the economy this week, with fresh production and spending data slated for release.  The final reading for first-quarter GDP growth is due out Wednesday, along with corporate profits and consumer spending data for the first quarter of the year.   On Thursday, the June update to the PCE price index will be released. 

Many Wall Street pros are calling for continued choppiness heading into the back half of the year, which means opportunities abound for those who know where to look. This week our team is recommending three tickers that are appealing for various reasons.  Continue reading for all the details.  

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Boston-based, Information management services company Iron Mountain Inc. (IRM) provides information destruction, records management, and data backup and recovery services to more than 220,000 customers in 58 countries.  The company has around 1,500 leased warehouse spaces and underground storage facilities worldwide.  In short, the company powerfully combines short-duration leases, which can reprice with inflation, with long-term recurring revenue.

As a testament to Iron Mountain’s leadership in its core storage business, the company serves 225,000 customers, including about 95% of the Fortune 100 companies.  As for what the company stores, the wills of Princess Di and Charles Darwin are housed in their facilities, as well as the original recordings of Frank Sinatra and Bill Gates’ Corbis photographic collection.   

The need for Iron Mountain’s physical facilities will likely never disappear. Still, as digital storage becomes more widely adopted, the company should continue to grow along with its global data-center business, contributing 8% of adjusted earnings through the first three quarters of 2021.  The company and analyst community alike see the data center as a driver of steady growth in the coming years.  

Iron Mountain forecasts revenue this year will increase 7.5% from 2020 to about $4.47 billion.  And the company also believes that its AFFO per share for this year will surge 10% from the previous year to about $3.39.  Based on that projection, the payout ratio for its 5% dividend yield will be around 73%, allowing the company to retain the capital necessary to expand its data-center business even as it rewards shareholders.

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Israel-based Nice Ltd. (NICE) is a provider of enterprise software with more than 27,000 customers (including 85% of the Fortune 100) from 150 countries.  Its operating segments consist of Customer Interactions Solutions and Financial Crime & Compliance Solutions.  Over the past year, the company generated $2.0 billion in revenue, and approximately $1.1 billion was cloud-based revenue.  Over the past three years, the company’s revenue grew 22.3%, from $1.57 billion in 2019 to $1.92 billion in 2021.   In terms of profits, its operating profit rose 10.6% to $263.9 million from $238.7 million a year earlier.   

Building on the stellar growth, the company reiterated its ambitious targets when it unveiled its NICE3D strategic plan during its recent investor’s day event.  The company outlined its updated financial goals through fiscal 2026, headlined by 30%+ operating margins and double-digit revenue growth.  Nice currently trades at 6.74x sales, considerably less than its main competitor Five9  at 10.03x.

The current consensus among 12 polled analysts is to Buy NICE.  A median price target of $265 represents an increase of 29% from Friday’s closing price.  

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Last up, we’ve got a unique approach to short-selling that allows investors to take a position that’s inverse to a curated selection of large and mid-cap stocks. The AdvisorShares Ranger Equity Bear ETF (HDGE) is unlike the majority of products offering short exposure to domestic and international equity markets as it is an actively-managed fund that seeks to identify candidates for short selling based on forensic accounting and other quant-based methodologies. 

The fund is making the most of a bad situation, posting positive returns as stocks continue to weaken.  So far this year, HDGE is up 28.6%, while the S&P 500 is down nearly 22%.  As an actively managed portfolio of individual components (versus a fund that’s inversely correlated to the market), HDGE offers the unique benefit of a time cushion in the event of a slow recovery, unlike a bear market or inverse fund where a market recovery would likely lead to an immediate loss in value. 

The managers behind this fund have an impressive track record, and the fund has a wide variety of potential applications depending on an investor’s outlook for the U.S. market.  The primary downside of this ETF is the hefty 5.2% expense ratio.  The fund’s strategy also involves frequent buying and selling of securities, which may lead to a high portfolio turnover and, consequently, may create a drag on returns. 

Overall, HDGE enjoys a solid asset base and can be used as an alternative for ‘vanilla’ inverse equity funds.  Its unique approach provides a solution for bearish investors who aren’t 100% focused on watching the market.

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