A series of headwinds have impacted the stock market recently. Inflations is rising, and has hit its highest level in 40 years. The Russian invasion of Ukraine, which promises to drastically cut both countries’ exports of wheat, crude oil, and natural gas, bodes ill for inflation – those drops in commodity exports will soon be reflected in more price spikes.
So what to do, if you’re an average retail investor? How to know where to direct your investment resources?
One strategy is to follow the insiders. The insiders are corporate officers, whose positions give them both responsibility for ensuring company profits and a deeper perspective on company prospects. As a result, they don’t trade their firms’ shares lightly – and when they start buying in bulk, investors should take notice. Fortunately, regulatory agencies require that insiders publish their trading activity publicly, so following their trades is a viable strategy.
And second, remember one of Warren Buffett’s favorite pieces of investing advice, attributed to Baron von Rothschild back in 1871. “Buy when there’s blood in the street-even if it is your own,” the Baron said. Both legendary investors would buy in when stocks are cheap, no matter what the reason, and then hold for the long-term, measuring their commitment to the stock by the decade.
So let’s put both strategies into play. We’ve opened up the Insiders’ Hot Stocks tool at TipRanks and pulled the details on two Strong Buy stocks that are showing both recent steep losses and strong insider buying. We’ll add in commentary from the Wall Street analysts to get a better view of these positions.
NerdWallet, Inc. (NRDS)
First up is a newcomer to the public markets, NerdWallet. This company brings a combination of tech and consumer choice into the personal finance industry, using an online platform via website and app to give unbiased and personalized insights to customers so that they can, in turn, make informed decisions regarding their money, credit, and banking choices. NerdWallet uses data analysis, including marketplace comparisons, to show users how to keep their finances under control, and how to save both time and money while controlling debt.
The market for this service is substantial. In the company’s annual credit card debt study, NerdWallet notes that the average household debt is over $155,000 – and that such debt is increasing. Year-over-year, the total household debt in the US rose 6.2% from 2020 to 2021, and reached a total of $15.24 trillion.
Last November, while markets were on the way up, the company moved to raise capital through an IPO, putting 7.25 million shares on the market at $18 each. In the event, the underwriters exercised their options in full, bringing the total shares sold to more than 8.33 million; the gross capital raised exceeded $130.5 million. The shares closed at more than $28 on their first day’s trading, and since then have fallen 65%.
In its first quarterly report as a public entity, NerdWallet showed a year-over-year revenue gain of 75%, from $56.7 million in 4Q20 to $99.5 million in 4Q21.
Of note on the insider front, company CEO Tim Chao-Ming Chen has been making significant purchases this month. His most recent, of 38,894 shares, came to more than $412,000, and followed an earlier purchase, also this month, of 61,106 shares for $598,839. Altogether, Chen now holds shares in the company worth $1,025,000.
NerdWallet has its fans among the analysts as well. Covering this stock for Truist, 5-star analyst Youssef Squali outlines a bullish view for NerdWallet’s future: “NerdWallet aims to continue to lean into S&M spend and in particular Brand marketing in the ST in order to spur long term awareness goals. Management’s stringent focus on Brand marketing in the ST not only creates a ‘halo effect’ across marketing channels for all verticals under the NRD’s umbrella, but also allows for increased leverage as Brand marketing becomes a ‘fixed’ cost and does not need to scale with revenue over time. We note that 2021 saw an improvement in margins vs. 2020 due to a normalization of pricing impacts caused by Covid that compressed margins, along with an intentional lean into Brand marketing that was slightly curtailed in 2H21. Management expects margins to exceed its historical high of 19% (2019) in the LT.”
In line with his outlook, Squali rates NerdWallet shares a Buy along with a $30 price target. If his price target is achieved, investors could realize a potential total return of ~208%
The Truist view is far from the only bullish take on NerdWallet. The stock has picked up 6 recent analyst reviews, which break down to 5 Buys against a single Hold, for a Strong Buy consensus rating. The shares are trading for $9.75 currently, and their $23.75 average price target indicates ~144% upside for the next 12 months.
Shift4 Payments (FOUR)
Let’s stick with the world of online fintech. Shift4 Payments got its start 25 years ago, as a payment processor for the leisure industry, focusing on restaurant and hospitality. To this day, while the company has expanded to serve a much wider range of enterprise customers, it still boasts such major leisure names as Radisson, Caesar’s, Best Wester, and Wyndham among its client list.
On the expansion side, Shift4 announced at the beginning of this month intention to acquire Finaro, international cross-border online retail payments servicer with a large share in the European market, and The Giving Block, a specialist in non-profit fundraising using cryptocurrency. The two acquisitions, when complete, are expected to greatly expand Shift4’s total addressable market, and to contribute some $35 million to adjusted earnings by 2023.
By the numbers, Shift4 is already doing well. It claims over 7,000 sales partners and more than 200,000 current customers, and processes over 3.5 billion transactions annually, totaling over $200 billion. It’s an impressive performance.
The 4Q21 results, however, were somewhat mixed. Shift4 reported $400 million at the top line, up 89% year-over-year, and beating the forecast by $17 million. EPS, however, missed. Non-GAAP earnings were reported at 8 cents per share, well below the expectation of 18 cents. Shares fell in the immediate wake of the earnings report. Overall, the stock is down 53% in the last 12 months.
Looking at the insider moves, we find that company founder, Chairman, and CEO Jared Isaacman picked up 82,000 shares this month, paying a total of $4.05 million. This was his second multi-million purchase in March; earlier, he had bought 120,000 shares for $5.52 million. These ‘informative buys’ bring Isaacman’s total stake in the company to more than $14.8 million.
RBC Capital’s 5-star analyst Daniel Perlin is not concerned by the mixed results of the recent quarter, and lays out a case for buying this stock now, while it’s down: “We would be buying the weakness as we believe 1) the expectation hurdle has been reset, which should enable the company to beat and raise numbers in FY22, 2) FOUR is increasingly diversifying its revenues mix outside of pure hospitality, 3) SaaS based revenues could continue to drive a positive mix, and 4) valuation is attractive at 13x FY23E EBITDA, which is a modest (18%) premium to slower growing peers (FOUR is growing 3x as fast).”
Perlin backs his stance with an Outperform (i.e. Buy) rating, and a price target of $86, implying a one-year upside of ~86% for Shift4 shares.
All in all, Shift4’s 8 recent analyst reviews include 6 Buys and 2 Holds, giving the stock its Strong Buy consensus rating. The average price target is $72.25, suggesting the stock has room to run ~56% from its current trading price of $46.31.
Originally published on TipRanks.com
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.