10 Best global stocks
With the exception of Asia, where Chinese regulatory crackdowns and growth concerns have weighed on major markets, global stocks appear to have eked out marginal gains after a somewhat volatile quarter.
Moderna, the pharmaceutical giant and Covid-19 vaccine manufacturer, has been the biggest gainer across the major U.S. indexes over the quarter, and despite Tuesday’s Nasdaq sell-off, the stock closed the session up 63.5 percent since the beginning of the quarter. This year, the company’s stock has more than tripled.
However, it may be too late to ride the wave on Moderna and Germany’s BioNTech, according to Morningstar equity analysts, who argue that both stocks are “significantly overvalued” at current prices.
Morningstar predicts that Moderna will generate $10.5 billion in annual revenue by 2030, $2 billion of which will come from Covid-19.
“We believe the firms will remain vulnerable to disruptive threats over the next ten years, and we do not assign a moat to either firm,” Andersen added.
In Europe, one of several stocks boosted by M&A news was British aerospace and defense firm Meggitt, which rose more than 60 percent in the quarter as of Tuesday’s close after accepting a £6.3 billion ($8.8 billion) offer from US industrial conglomerate Parker-Hannifin.
However, the deal is reportedly being scrutinized by UK Business Secretary Kwasi Kwarteng, amid security concerns raised by military and political figures.
Swedish Orphan Biovitrum shares have risen 52.1 percent since the beginning of the quarter after the company accepted a 69 billion Swedish crown ($8 billion) buyout bid from Advent International and Singapore’s sovereign wealth fund GIC.
QT Group, a Finnish software company, has increased its share price by 43.9 percent following a strong second quarter that saw net sales increase by 87.6 percent year on year and profits rise sharply. In April, the company also agreed to buy Froglogic, a German quality assurance software firm.
President and CEO Juha Varelius described the second quarter as “exceptionally strong,” but warned that the pandemic is still affecting many of the company’s customers.
Rolls-Royce, a British aircraft engine manufacturer, increased 46.4 percent in the third quarter after returning to profit in the second quarter and sending its first all-electric aircraft on its maiden flight.
The company’s stock price had been rising for several weeks due to a relaxation of air travel restrictions, but it has been boosted further in the last week by a new contract win. The company signed a contract with the US Air Force under which its F-130 engine will power the B-52 for the next 30 years.
Atlassian, an Australian Nasdaq-listed software firm, gained 48.6 percent in the third quarter as of Tuesday’s close.
Paycom Software, Monolithic Power Systems, and Albemarle Corp. have risen 34.4 percent, 31.3 percent, and 28.5 percent.
Despite the fact that Asian markets took a beating during the quarter, Hong Kong power tools manufacturer Techtronic Industries has gained 14.5 percent since the beginning of the quarter due to strong earnings growth.
Vulnerable stocks according to Goldman
The stock market has been roiled, but Goldman Sachs believes that options traders may be overlooking some key names.
In a note issued Wednesday, Vishal Vivek of Goldman Sachs’ derivatives research team stated that interest rate volatility does not appear to be priced into the options markets for some rate-sensitive stocks. These stocks could provide an appealing way for investors to hedge against continued rate volatility or even find some potentially profitable trades.
“The goal is to identify attractive options for hedging; however, investors bullish on a factor will also find calls appealing for upside exposure,” according to the note.
The stocks on which Goldman concentrated its efforts have relatively high betas and correlations to the iShares 7-10 Year Treasury Bond ETF, which falls when yields rise.
Traders can protect themselves from further increases in Treasury yields by purchasing put options on these stocks, which can be a profitable strategy when the underlying stock price falls. Traders can also profit from undervalued volatility by purchasing a straddle on stock, which entails purchasing a put option and a call option with the same expiration date and strike price, and profiting when the price falls or rises more than the premium paid for the options.
Equinix, a data center company, is one of the most vulnerable stocks on the list. Shares fell more than 7% in the previous four sessions before leveling off on Wednesday as the yield spike subsided.
Equinix is among the real estate investment trusts on the list. REITs are popular among income investors, but as interest rates rise, their payouts become less appealing.
PepsiCo, a consumer staples company, was also included on the list. Food product CEOs have been warning about the impact of higher food and shipping costs on inflation, and inflation fears appear to be one of the factors pushing yields higher.
Costco and Dollar General, both of which are vulnerable to inflation, made Goldman’s list as well.
Buying opportunities in the tech sector
Last week, the 10-year rate was as low as 1.29 percent, and it had been as low as 1.13 percent as recently as August.
The promise of future earnings growth drives the price of technology stocks. On Tuesday, technology was the worst-performing sector in the S&P 500, falling by about 3%.
Apple, Microsoft, and Google parent Alphabet all appeared. The three stocks took a beating during Tuesday’s sell-off, each losing between 2.3 and 3.7 percent.
However, during rising-rate environments, these stocks have risen. Google, for example, gained 17.3 percent on average during the previous periods, while Apple gained 20.5 percent.
A well-known semiconductor stock Nvidia was also among the rate spike tech stock winners. When the 10-year Treasury yield broke out, Nvidia shares gained 30.1 percent on average. The stock is a Wall Street favorite, with 66.7%.
PTC was the top gainer during previous rising-rate periods, with a 37.5 percent average gain. The software stock also has the highest implied upside on the list, with Wall Street anticipating a 38.1 percent increase in shares.
T-Mobile, Intuit, and Adobe are among the other stocks listed.
Bank of America promotes Roku
Roku has dropped 34.5 percent since its peak in late July.
Bank of America reiterated its buy rating on Roku and maintained its $500 price target, implying a 55.7 percent increase from Monday’s close.
According to the firm, Roku continues to be a leader in the streaming space, and its advertising revenue is increasing. According to a Conviva report, Roku was the most popular device among people who stream over-the-top video (media delivered directly to consumers via the internet) on TV screens.
“Despite reopenings, Roku maintained its lead in streaming viewership,” Bhattacharya said.
Furthermore, according to Bank of America, Roku’s valuation is attractive in comparison to high-growth software companies.
Bank of America also emphasized Roku’s original content, smart TV, branded content studio, and international expansion potential.
Roku stock is down 3.3 percent in 2021, compared to the S&P 500′s gain of 18.3 percent.
Constellation has an outperform rating from Credit Suisse and a $275 price target, implying a 29.9 percent increase from Wednesday’s close.
According to Nielsen data, the alcoholic beverage industry’s and Corona Seltzer’s seltzer sales growth has been negative since late summer.
However, Constellation’s Corona Seltzer line accounts for only 2.1 percent of sales and is “not critical to driving topline,” according to Credit Suisse.
According to the company, Constellation’s beer profit margins are still “best-in-class” and could expand further.
According to Credit Suisse, recent comments from Constellation’s CFO indicate that margins may be better than expected due to “delayed depreciation charges, incremental pricing, positive mix accretion from seltzer moderation, and cost headwinds that did not materialize.”
Credit Suisse also sees strength in another important component of the Constellation portfolio.
“The Mexican beer portfolio is the crown jewel of operations,” Gajrawala said, “but a healthier wine business is just around the corner.”
In 2021, Constellation’s stock is down 3%.
Best stocks as inflation rates increase
Strong pricing power stocks tend to outperform during and after periods of high inflation, according to the firm in a note to investors on Tuesday, adding that the trend is most pronounced among large cap companies such as those in the financials, energy, and utilities sectors.
The Federal Reserve has set a 2% inflation target. Policymakers forecasted 3.7 percent inflation for this year in their key inflation measure, the core personal consumption expenditure price index, last week. This is an increase from the June forecast of 3%.
“We expect the pricing power theme to continue to evolve and play out over the coming quarters,” strategist Keith Parker wrote in a note, citing surge shipping costs, rising raw materials, supply chain issues, and accelerating wage growth.
“In the 12 months following periods of elevated inflation, our quantitative screen of strong pricing power stocks outperformed weak pricing power stocks by 20%,” he added. “The upcoming Q3 earnings season could be another important catalyst for this theme, with rising input costs and supply chain disruptions potentially having a more visible impact on earnings results and surprises,” says the report.
The firm’s analysts examined pricing power trends, cost pressures, and margin outlooks for stocks in 33 industries in their coverage universe. Here are ten companies they believe have strong pricing power and will outperform:
UBS chose Puerto Rico-based Popular and Honolulu-based First Hawaiian as their top banks. Both companies “benefit from having island franchises that are essentially oligopoly banking markets, which drives higher pricing power,” according to UBS analyst Brock Vandervliet.
Popular shares are up nearly 40% in 2021, while First Hawaiian’s share price is up roughly 25%.
Generac Holdings and Solaredge Technologies were highlighted as alternative energy picks by the firm. This year, Generac has increased by approximately 78 percent. In 2021, Solaredge is down 17%.
Keurig Dr. Pepper, which has increased by 7% this year, was also included on the list. According to UBS, the “consolidated natures” of the soft drink industry and the “discretionary nature” of beverages as an affordable luxury support pricing power, and consumers may be less price sensitive with these products.