Sometimes a bottom must be reached in order for growth to occur. That’s what a handful of S&P 500 companies are hoping as they look ahead to the new year.
It’s been another memorable record-setting year for the U.S. stock market. For some stocks, however, it’s been a year to forget. The S&P’s 27% year-to-date return has left plenty of names in the dust just as it has been led by some remarkable winners.
Ten stocks have more than doubled this year with Devon Energy and Bath & Body Works currently duking it out for MVP honors. Yet more than 70 stocks, or 15% of the S&P, are in the red year-to-date. This is largely a reflection of the supply chain constraints and other pandemic headwinds that have plagued some companies more than others.
This means investors have a diverse pool of downtrodden stocks in which to do some bargain hunting. While some companies will continue to struggle in the early months of 2022, others are in a good position to right the ship. Here are three S&P laggards that could soon become leaders.]
Will Global Payments Stock Rebound in 2022?
Global Payments (NYSE:GPN) has a comfortable lead in the race to be the worst-performing S&P stock this year. It is unfamiliar territory for a company that finished in the green every year from 2013 to 2020. The payments solutions provider has delivered solid year-over year earnings growth and topped the consensus in each quarter this year—but its stock is down more than 40%.
The main issue for Global Payments has been an increasingly competitive payment solutions landscape that has arisen from the pandemic. Despite management’s upwardly revised guidance for 2021, investors have grown concerned about a wave of new entrants to go along with traditional competitors like Fiserv and First Data. Together they represent a serious threat, but Global Payments has fended off competition before.
For starters, the company’s global presence is a major competitive advantage. Strong relationships with over 1,300 financial institutions supporting 140-plus payment types will make it hard for challengers to gain ground. Partnerships with Amazon and Google are additional feathers in its cap. Then there is Global Payment’s recent acquisition of Total System Services (TSS) which is expected to generate synergies and higher margins next year.
Management’s long-term target of 17% to 20% EPS growth looks reachable given the strength of Global Payments’ existing network, partnerships, and TSS integration. So, with the stock trading at 16x forward earnings and the average analyst price target near $200, there is a major disconnect here.
Is Fidelity National Stock a Buy?
Fidelity National Information Services (NYSE: FIS) has a similar story to Global Payments. Despite three straight earnings beats this year, the stock is down 21% on concerns about a growth slowdown in the face of new competition.
Analysts are projecting 15% earnings growth next year which would indeed mark a slowdown from the 22% growth forecast for this year. But the fintech leader has a few tricks up it sleeve which could help it outperform in 2022.
Fidelity National recently outlined a new capital allocation strategy that makes growth investments a priority. Shareholders are also expected to benefit from higher dividends and stock buybacks as part of the plan which would make the stock more attractive.
The company is also expected to derive cost savings from its merger with Worldpay, an established payment processor that’s been in the business for 50 years. Despite the duo being relative dinosaurs in the world of fintech, their combined global footprint will give them ample opportunity to gain market share in the fast-growing e-commerce market.
Since its third-quarter update, four sell-side firms have called Fidelity National a buy and two a hold. The digital payments industry has a long road ahead. Even the incumbents will benefit from the growth.
Why is T-Mobile Stock Down This Year?
It’s hard to call T-Mobile US (NASDAQ:TMUS) an S&P loser given the stock’s 72% surge in 2020. Still, down 13% year-to-date, shares of the wireless service provider look to be taking a breather before potentially recharging in 2022.
T-Mobile got a pandemic boost last year that made for some difficult comparisons heading into 2021. Demand for Internet connectivity to work, learn, and play from home took off along with the popularity of the company’s no contract service plans. This year profits are on pace to be lower, but a sharp rebound is forecast for 2022.
Analysts are predicting that EPS will jump 39% next year and exceed 2020 levels. T-Mobile is expected to build off its lofty subscriber acquisition numbers and derive greater benefits from the Sprint merger heading into the new year. Its bundling of popular streaming services like Netflix, a practive that has been mimicked by competitors, should also boost its competitive position relative to AT&T and Verizon.
Based on the growth ahead, T-Mobile is likely to regain favor with investors in 2022. This year should ultimately amount to a healthy pullback for a company with solid long-term prospects in the global wireless market.
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