We recently compiled a list of the 10 Oversold Growth Stocks to Invest In. In this article, we are going to take a look at where StoneCo Ltd. (NASDAQ:STNE) stands against the other oversold growth stocks.
As investors focus on consumer spending in a bid to assess the broader health of the US economy, current data points demonstrate that the fears of recession are now overdone. UBS believes that the excess savings that were built up during the COVID-19 pandemic are now used up, and elevated levels of interest rates seem to be impacting activity, mainly in the housing market. However, as the US Fed moves further with its policy easing cycle, lower rates are expected to ease some downward pressure on the broader economy.
S&P Global mentioned that a risk-averse mood has been clouding the US stock market investor outlook for 4th straight month. That being said, the overall risk sentiment saw some improvement from September’s 16-month low, as per the latest results from the firm’s Investment Manager Index survey.
Forecasts for Q4 2024
As per JP Morgan, the stocks touched their 44th all-time high recently. Technology (+2.5%) continued to dominate the broader market, with Al roadshows demonstrating improved demand throughout the country. While past performance cannot be relied upon, the seasonality says that Q4 2024 acts as a tailwind for the broader US markets. Overall, consumers increase their spending more on retail at the time of the holiday season and the “Santa Claus” rally. However, the bank believes that 3 global events might affect the Q4 2024 asset returns. These include geopolitical tensions, Chinese policy stimulus, and the U.S. election.
Amidst the geopolitical tensions, gold, which generally produces positive returns in Q4 2024, can act as a safe-haven asset. Since the start of the quarter, oil prices have increased too. Therefore, both oil and gold can hedge portfolios. Next, the large bank believes that if further China’s policy support outpaces the market projections of 2 – 4 trillion renminbi (RMB) supplementary bond issuance, there might be another rally in the offing for onshore and offshore equities and commodities. Talking about the elections, the typical seasonality is likely to persist. There can be increased volatility.
Outlook for Growth Stocks
Market experts opine that when there is a reversal in the global interest rate cycle, the growth stocks are expected to outperform. This is because reduced rates help in fueling liquidity in the growth companies.
As per Comerica Wealth Management, the market environments with declining rates and rising profits support the broader equity prices. Moreover, the expectations of the rate cuts led to a change in the investing appetite as these investors are now focused on public companies that are interest-rate sensitive (including the growth stocks). Therefore, B. Riley Wealth Management believes that dividend stocks, telecoms, and consumer staples are some of the sectors that are likely to benefit.
Our Methodology
To list 10 Oversold Growth Stocks to Invest In, we used a Finviz screener to extract stocks that have fallen significantly on a YTD basis and have a forward P/E of less than 15x. After getting a list of 25-30 stocks, we narrowed it down to the following 10 stocks having high hedge fund holdings, as of Q2 2024. Finally, the stocks were ranked in the ascending order of their hedge fund sentiments.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of software engineers in a digital workspace collaborating on a financial technology software solution.
StoneCo Ltd. (NASDAQ:STNE)
Forward P/E (As of 14 October): 7.49x
% Decline on a YD Basis: ~37%
Number of Hedge Fund Holders: 35
StoneCo Ltd. (NASDAQ:STNE) offers financial technology and software solutions to merchants and integrated partners.
StoneCo Ltd. (NASDAQ:STNE)’s core strength is in its Merchant Services Micro-Business (MSMB) segment. This segment has consistently outpaced industry growth rates. Wall Street believes that the company’s strong market penetration and customer acquisition capabilities continue to support total payment volume (TPV) in this segment. The company’s growth strategy remains multi-faceted, which revolves around focusing on expanding its payment processing capabilities, enhancing credit offerings, and developing its software solutions.
The accelerated adoption of PIX in Brazil offers both challenges and opportunities for StoneCo Ltd. (NASDAQ:STNE). While PIX transactions garner lower fees as compared to traditional payment methods, they provide numerous strategic advantages that the company can leverage. The rise of PIX might lead to an overall increase in electronic transactions. This can expand the total addressable market for StoneCo Ltd. (NASDAQ:STNE)’s services.
The company continues to see the potential for market consolidation and targets to maximize value from its assets. Analysts at UBS Group increased their price objective on the shares of StoneCo Ltd. (NASDAQ:STNE) from $17.00 to $18.00, giving a “Buy” rating on 29th August.
Investment management company Ave Maria recently released its fourth quarter 2023 investor letter. Here is what the fund said:
“StoneCo Ltd. (NASDAQ:STNE) provides solutions that enable merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. StoneCo has faced near-term operational challenges because of the pandemic and high levels of inflation in Brazil. The company appears to be moving past these challenges and it appears that the successful integration of the newly acquired software business with its payments business will drive substantial shareholder value longer term.”
Overall STNE ranks 5th on our list of the oversold growth stocks to invest in. While we acknowledge the potential of STNE as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than STNE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
