“Everything that dies someday comes back,” sang the Boss, all the way back in 1982. And today, economists and investors are fielding worries that stagflation has staged a comeback. The word refers to the toxic combination of stagnant demand, stubbornly persistent inflation, and high unemployment that wrecked the Carter Presidency just a few years before that Springsteen classic was released – and today’s economic and market environment is starting to resemble those times.
Nothing repeats perfectly, and so the main headwinds have changed in 40 years. Today, the pressure comes from a disrupted supply chain, trillions of dollars in fiscal stimulus, and a labor shortage. Based on those concerns, inflation hit 5.3% annualized in September.
But not everyone is on board the doom’n’gloom train. David Kostin, chief US equity strategist from Goldman Sachs, writes in a recent note for his firm’s clients: “Stagflation is not our economists’ base case expectations.”
Rather, Kostin sees the current environment – and the market pullback, especially – as an opportunity for investors to buy in at a discount: “Despite near-term uncertainty we expect the equity market will continue to rally as investors gain confidence that the current pace of inflation is ‘transitory.’ We believe this dip will prove a good buying opportunity, as 5% pullbacks usually have in the past.”
Goldman’s stock analysts are following Kostin’s lead, and pointing out for investors stocks that bear close watching. Just recently, they tapped two stocks new to the public markets as likely to rise 30% or more in coming months – a solid return that investors should note. Let's take a closer look.
We'll start with EngageSmart, a software company offering customer engagement and integrated payments solutions on the popular SaaS model. EngageSmart software packages allow business customers to manage and improve their business workflows, including client communications, paperless billing and electronic payment processing, and scheduling. The company boasts that, in 2020, over 26 million consumers interacted with an EngageSmart e-commerce solution.
This Massachusetts-based company held its IPO in September of this year, debuting the ESMT ticker on Wall Street on September 23. The IPO event was planned for 13 million shares going on sale at $26 each; this would have exceeded the original pricing of $23 5o $25 per share. When the stock started trading, it sold 14.6 million shares at $26, and raised more than $378 million in gross proceeds.
Covering this new stock for Goldman, analyst Will Nance notes that bill payment methods are in the midst of a long-term modernization, and that EngageSmart is right in the middle of that trend.
“With ~50% of bill payments still paid through legacy channels, we expect continued tailwinds behind online bill pay platforms should drive consistent, predictable growth. The company’s strength in utilities and municipalities, as well as its smaller exposures to charitable giving and healthcare, two of the larger markets for consumer bill payments, should continue to drive growth in enterprise revenues in the mid 20% range,” Nance noted.
To this end, Nance rates ESMT a Buy and his $44 price target indicates confidence in a 33% upside in the next 12 months. (To watch Nance’s track record, click here)
Overall, Wall Street comes out on the bullish side here. Of the 10 reviews on record, there are 6 to Buy and 4 to Hold, for a Moderate Buy consensus rating. The shares are priced at $33.07 and the $39.06 average target implies ~18% one-year upside from that level. (See ESMT stock analysis on TipRanks)
Sterling Check (STER)
Next up on Goldman list is not a new company – it has been in business since 1975. Since then, Sterling has become a market leader in the background check industry, serving over 40,000 clients around the world and conducting more than 75 million background searches every year. The company boasts that more than 70% of its criminal background checks can close in 1 hour or less. The company uses a combination of digital automation and human intuition to provide the most accurate checks possible.
Sterling offers its services to every imaginable industry, from obvious ones like staffing, government, and financial services to tech companies and construction contractors. The company has unique packages for small and medium businesses, with flexibility in pricing and the type checks conducted.
The company held its IPO just a month ago, and the STER ticker started trading on September 23. The IPO saw 14.3 million shares go on the market, at $23 each. This was above the expected pricing of $20 to $22. Of the total shares sold, 4.76 million were sold by the company, while the remainder were sold by existing shareholders. Sterling brought in over $109 million in gross proceeds, and netted $94.4 million from the IPO. The company used the funds, along with existing liquidity, to pay off $100 million in an outstanding term loan.
Goldman analyst George Tong has taken up coverage of this new stock, and he is impressed with Sterling’s leading position in its niche. Tong says of the company, “We believe STER’s scale, global reach and technology platform enable accurate and rapid background screens, and paves the way for market share gains and annual organic revenue growth of 9-11%. STER’s differentiated and leading position in serving the global gig economy further represents an attractive source of growth, as do its strength in international markets, expansion into the ID verification and post-hire screening markets, and ability to penetrate existing clients with additional solutions.”
In line with these comments, Tong starts his coverage with a Buy rating. His $37 price target implies a 12-month upside of 40%. (To watch Tong’s track record, click here)
Overall, Sterling presents investors with a Strong Buy analyst consensus rating, based on 8 reviews which include 6 Buys and 2 Holds. The stock’s trading price is $26.4, and the average price target is $31.14, implying ~18% upside from that level. (See STER stock analysis on TipRanks)
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.