Stocks finished the week mixed as concerns around rising infection and hospitalization rates in Europe weighed heavy on investor sentiment. However, the S&P 500 and Nasdaq did continue to rack up record highs as impressive Q3 earnings from key tech names and retailers continued to provide the bulls sustenance. Last week the Dow lost 1.4% while the Nasdaq was up 1.2%, and the S&P 500 gained a modest 0.3%.
The holiday-shortened week ahead will be packed with more retail and tech earnings, as well as some key economic data ahead of Thanksgiving and Black Friday. U.S. financial markets are closed on Thursday, Nov. 26, and adhered to an abbreviated trading schedule on Friday. The New York Stock Exchange and the Nasdaq will close at 1 p.m. Eastern time on Friday. In comparison, the Securities Industry and Financial Markets Association recommends a 2 p.m. Eastern close for U.S. bond markets.
Historically, Thanksgiving has become synonymous with low-volume trading, which can lead to volatility. Against this backdrop, our team has spotted a few points of interest in the market for the week to come.
First up is a mighty mid-cap that’s demonstrating traction amid significant changes in the company’s business model and management. San Francisco-based software analytics company New Relic, Inc. (NEWR) offers solutions including application development, production monitoring, real-time analytics, mobile application management, and digital transformation. Its offerings include new relic APM, new relic mobile, new relic insights, new relic services, a new relic browser, and new relic platform.
Under the guidance of the founder and CEO of Lew Cirne, New Relic (an anagram of his name) helped introduce the concept of application monitoring to a generation of developers building web and mobile apps. Investors seemed skeptical in July of this year, when Cirne stepped down, leaving the role to long-time Microsoft (MSFT) veteran Bill Staples, but the shift seems to be paying off as changes Staples made to New Relic’s business model take effect.
The company switched to a consumption-based business model that charges customers based on the number of employees using New Relic software. Previously, New Relic licensed its software through traditional subscription contracts. “Our move to a consumption model puts our customers at the center of every function in the company. This transformation isn’t easy, and it won’t be completed quickly because we are asking our customers, our employees, and our shareholders to participate in a journey where the destination is clear, but the path to get there isn’t,” Cirne told investors in February when the changes were announced. The aim of the shift is to derive 80% of its revenue from consumers in the 2022 fiscal year in a bid to return revenue growth to rates seen in the overall market.
The track record since the new model speaks for itself. Over the past two quarters, NEWR has exceeded expectations on the top and bottom lines. Earlier this month, the company reported revenues of $196 million for the second quarter of its 2022 fiscal year, blowing past expectations for $182.2 million. NEWR also reported an adjusted loss of 10 cents a share, while analysts had expected 13 cents. The company ended the quarter with 14,300 active paying customers, with customers paying more than $100,000, exceeding 80% of total paying customers for the first time, said CFO Mark Sachleben.
J.P. Morgan analyst Sterling Auty double upgraded NEWR from Underweight to Overweight and raised his target for the stock price to $150 from $70. Citing the “far better than expected” earnings.
“This was a big change for the positive this quarter as the business model switch, management changes, and operational moves have now shown two straight quarters of material improvement and has the company pointed on growth acceleration back toward industry levels,” Auty wrote in a note.
New Relic also adjusted its fiscal-year outlook, raising its forecast for revenues to between $778 million and $782 million, up from $730 million to $735 million previously.
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Next on the list is Luxembourg-based Globant S.A. (GLOB), a technology services company that provides content management systems and e-commerce applications to clients in North America, Europe, Latin America, and internationally.
The company is already taking advantage of the growing global demand for digital solutions. Aragao is positive on the Latin American Technology sector, expecting the urgency of digitalization to continue driving improved sales growth and margin expansion for at least the next three years.
When we took a deeper look at insider activity at Globant, we were intrigued and impressed to find that insiders have $267 million invested in the $13 billion company. This suggests that leadership will have shareholders’ interests in mind while making decisions.
GLOB investors were pleased on Thursday when the company reported robust Q3 results and increased full-year guidance. Citi analyst Ashwin Shirvaikar raised the firm’s price target on Globant to $370 from $310, citing “another strong beat-and-raise” quarter as it continues to see strong demand for digital transformation services. The analyst believes Globant is well-positioned to take advantage of accelerating digital transformation trends.
Looking back at performance for the year, GLOB has consistently beat the market. Shares of Globant have increased 46% since the beginning of the year. In comparison, the S&P 500 has only moved about 27%. We think that the stock has more room to run if conditions remain favorable.
The consensus among the pros on Wall Street is to Buy GLOB stock. Of 13 analysts offering recommendations for the stock, 12 rate the stock a Buy, and 1 rates it a Hold. There are no Sell ratings for Globant stock. A median 12-month price target of $361 represents an 18% upside from the current price.
Last up on this week’s watchlist is a real estate investment that should appeal to both value and growth-oriented readers. STAG Industrial, Inc. (STAG) is a real estate investment trust focused on acquiring and operating single-tenant, industrial properties throughout the U.S. The company currently owns 517 properties across 40 states with 103.4 million square feet of space.
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STAG is active across all aspects of the industrial real estate market, including owning light manufacturing properties and flex/office space. Because these properties are essential to their tenants, STAG was able to collect nearly all the rent billed last year. Flex/office space is a market estimated at $1 trillion of properties in the U.S. alone. With just a 0.5% share of that market, STAG has plenty of room to grow.
STAG’s portfolio is continually expanding through acquisition. It will often purchase value-add properties and leverage its substantial leasing and redevelopment experience to increase shareholder value. Over the next five years, it plans to spend $800 million to $1.2 billion on property purchases.
Thanks to this acquisition strategy, the company’s payout has been slowly but steadily increasing. Given the REIT’s aim to invest billions in expanding its portfolio over the next five years, that trend should continue. The stock sports a comfortable, 3.4% yield paid out monthly, making it even more attractive to income-seeking investors.
STAG has developed an investment strategy that helps investors find a powerful balance of income plus growth. That income with upside makes them a great high-yield REIT to consider adding to your portfolio.
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