Stocks rebounded last week, bouncing back from the worst week of the new year. The Nasdaq surged 4.3% for its fourth positive week in a row. Meanwhile, the S&P 500 and the Dow posted smaller gains, rebounding from declines the previous week. With only two trading sessions left in January, the Nasdaq was on track to record its strongest monthly result since July.
The week ahead will be eventful, with the FOMC’s policy meeting taking center stage. At its meeting ending on Wednesday, the U.S. Federal Reserve is expected to lift its benchmark interest rate again. Market participants are also looking forward to earnings from some of the largest companies in the world, including big tech firms Apple, Amazon, Google, and Meta Platforms.
Software stocks were among the market’s biggest losers in 2022 amid drastic shifts in Fed policy. But amid signs of cooling inflation over the past few months, interest rate hikes have slowed. With inflation collapsing, it seems likely that interest rates will continue falling through 2023. If they do, it could be up, up, and away for software stocks, such as our first of three recommendations for the week ahead.
The next-generation data storage market is predicted to grow by 8.5% to $81 billion by 2025. All-flash data storage hardware and software products developer Pure Storage (PSTG) has upward solid top and bottom-line results, a healthy balance sheet, and growing cash flow. PSTG investors benefit from its subscription-based model, which is now at over $1 billion in annual recurring revenue. With a growing customer base in a market with substantial long-term growth potential, investors may want to take a bullish stance on this company.
StoneCo Ltd. (STNE) provides back-office software, loans, and other financial services to small and medium-sized businesses with a focus on reinvesting the cash it generates to acquire or build new financial products for its customer base. Since early 2019, the company has grown the number of small and medium business clients by 3x, revenue by 2.3x, and net income by 2.2×. Stoneco stock lost 53% of its value in 2022 on rising interest rates and macroeconomic risks in Brazil. But base interest rates in Brazil seem to have peaked, and a potential decline in the second half of 2023 is expected as Brazil’s inflation normalizes, reducing the margin pressure from rising financial expenses.
Drugmaker, Viatris’ (VTRS) is profitable and looking for more growth. The company is trimming its less-profitable operations, including its biosimilars, women’s health division, and over-the-counter drugs. In its place, it is adding an ophthalmology franchise through the $750 million acquisitions of Oyster Point Pharma and Famy Life Sciences. The deal is expected to close in the first quarter of 2023. Management expects the acquisition to generate at least $1 billion in sales by 2028.
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