Three Stocks for the Week of April 3rd

Markets wrapped up a volatile month and quarter with a significant divergence among the major indexes. Strength in technology stocks offset weakness in the financial sector, resulting in a 17% quarterly gain and a 4.5% gain in April for the tech-heavy Nasdaq. Meanwhile, the S&P 500 added 7.5% for the quarter and 1.6% for the month, and the Dow was up 0.9% in Q1 but lost a fraction of a percent in April.  

Even after a hot start to 2023, some growth stocks are still way too cheap. This week’s first recommendation is a notable tech name with stellar cash flow and growth potential currently presenting an attractive risk-reward proposition.    

Meta Platforms Inc. (META)

One notable growth name that got hammered in 2022 is Meta Platforms Inc. The stock currently trades at less than 25x forward earnings. Still, with the most prominent family of apps and 4 billion users worldwide, META’s recovery this year has been swift. The ticker has stacked on 64% YTD. 

Despite its recent rally, the social media leader’s stock is still down 46% from its high and looks cheaply valued for long-term investors. Meta’s incredible cash flow and balance sheet also afford it the ability to take chances and invest in things like the metaverse. The company closed out 2022 with $30.8 billion in net cash, cash equivalents, and marketable securities. Further, it generated $42.7 billion in operating income from its family of apps. 

Meta trades at under 20 times the expected annual profit and four times expected sales. With a core business that has held up well against intense pressures, underappreciated potential for success in the metaverse, and shares trading at multiples that leave room for significant upside, Meta stock continues to look undervalued.

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StoneCo Ltd. (STNE)

Brazilian digital payments company StoneCo Ltd. (STNE) provides back-office software, loans, and other financial services to small and medium-sized businesses. Last month, a Brazilian central bank survey showed economists expect rate cuts to start in November. Last week, the country’s central bank kept its benchmark rate at 13.75% despite pressure from President Luiz Inácio Lula da Silva’s government to ease borrowing costs. STNE could yield some big gains for investors as interest rates come down in Brazil.

StoneCo’s share price has gotten crushed in the last two years. In 2021, it fell a whopping 79.9%. In 2022, it dropped 44% as growth and tech names languished. The stock is up nearly 12% in 2023 and seems likely to continue its upward trajectory as economic policy eases in Brazil. Despite the recent rally, shares are still cheap at just 14.9 times the amount of free cash flow its operations generated over the past year. STNE has a Hold rating from the pros who cover it and a median target price of $12.33, representing a 32% increase from Wednesday’s closing price.  

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Axsome Therapeutics (AXSM)

Axsome Therapeutics has two approved drugs on the market. Sunosi, a dopamine-norepinephrine reuptake inhibitor and the only one of its kind to treat narcolepsy, and Auvelity, a fast-acting oral treatment for depression, also the first of its kind. The latter launched in October and is being evaluated to treat agitation in people with Alzheimer’s disease and to help people quit smoking.    for the treatment of central nervous system disorders and two others that it plans to submit for FDA approval this year.

Share price sank more than 10% last month following the release of disappointing fourth-quarter earnings. The company incurred an adjusted loss of $1.28 per share and generated $24.4 million in revenues. Spending was up 227% year over year. But this increase was due to higher commercial activities for Sunosi and Auvelity, including sales force onboarding and marketing spending, which should pay off in the coming quarters.

Other potential tailwinds include Axsome’s two other drugs — AXS-07 for treating migraines and AXS-14 for fibromyalgia — that it plans to submit for FDA approval this year.

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