If your stock picks are largely limited to the names you hear about in the news, you may be doing yourself a disservice. That's not to say companies making headlines can't also be good investments. But headlines can -- and do -- drive stocks to frothy prices. There's often more upside with names the investment industry is ignoring.
To this end, anyone looking for an undervalued, overlooked name to add to their portfolio may want to consider StoneCo Ltd (NASDAQ:STNE), Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM), and Ecolab (NYSE:ECL). None of them are complete unknowns, but Wall Street hasn't yet told the entirety of their stories to the investor community.
Fans and followers of Warren Buffett may have noticed a relatively new (albeit small) position in the Berkshire Hathaway portfolio -- StoneCo. Berkshire was an 11% owner of the digital payments company when it went public in late 2018. The stock's gain in the meantime means Buffett's stake is now worth a little more than $1 billion, versus StoneCo's market cap of $26 billion.
If you're not familiar with the company, there's a reason...for the time being, anyway, it only does business in Brazil. But what a business it does! It's been compared to fintech stocks like PayPal and Square, in that it's so much more than a payment middleman. The company also offers point-of-sale hardware, e-commerce solutions, and small business accounting tools, just to name a few. It's also working on an acquisition of Linx (NYSE:LINX) that will bring more software in-house.
It all matters.
See, StoneCo is at a pivotal moment in its history. CEO Thiago Piau recently explained in an interview with S&P Global Market Intelligence that his company is aiming to be a "protagonist in the digitization of Brazil," which he says is bouncing out of the pandemic lull much faster than expected. It's rebounding, however, into a much more mature digital arena. The nature of this recovery is creating a ripple effect across the continent too, setting the stage for growth outside of Brazil in the foreseeable future. In the meantime, there's plenty of opportunity to tap within the company's home country. Despite its growth, StoneCo still only facilitates about 8% of Brazil's digital payments market.
Of course, Berkshire's interest doesn't inherently mean you should also be an investor, but it certainly doesn't hurt the argument.
Sociedad Quimica y Minera de Chile
If you think battery-powered electric vehicles are the inevitable future, forget Tesla...at least until its fiscal results catch up with the stock's frothy price. What investors really need to be thinking about now is the lithium needed to make those batteries. There's (usually) enough for now, but the supply chain is set to be severely crimped as the worlds shifts away from combustion-powered cars.
Enter Sociedad Quimica y Minera de Chile.
Don't sweat it if you can't say it -- most people struggle with the moniker. That's why it's more commonly just called SQM. The important thing to know about the company is that it owns and operates one of the world's lowest-cost lithium mining operations, and, accordingly, is one of the world's biggest lithium producers.
Those few people who keep tabs on the company may know 2020 has been a tough year for SQM. Third-quarter revenue was down 4% year over year, and remains down 11% through the first three quarters of the year. Meanwhile, year-to-date income has been more than cut in half, with Q3's net income down 97% to barely breakeven levels.
If there was any year not to use as a barometer of SQM's business, though, this is it. Lithium prices are down 47% year over year, but the bulk of that plunge was caused by disruptions linked to COVID-19. Once the contagion is curbed, electric vehicle output should recover. That in turn will rekindle demand for lithium batteries. Minerals market research and consulting outfit Roskill forecasts that worldwide lithium consumption will grow by nearly 20% per year through 2030.
It's not just a lithium miner, for the record, but Morningstar analyst Seth Goldstein believes the proliferation of battery-powered cars means lithium will eventually account for about two-thirds of SQM's income. As such, it's a widely overlooked play on the EV evolution.
Finally, Ecolab isn't exactly off Wall Street's radar. Around 20 analysts follow it, which is more or less the average for exchange-listed stocks. Wall Street's analysts haven't exactly given this company its due attention or accolades either, however, and as a result, individual investors may be missing out on an opportunity.
Ecolab makes a variety of industrial hygiene and disinfection solutions. Its wares include commercial-grade dishwashers, fabric conditioning tools used by paper and packaging manufacturers, and HVAC filtration systems for food processing plants, just to name a few. Contamination is always a concern for packaged consumer products, but it's been a decided priority in the shadow of the coronavirus outbreak.
One would think such an environment would be a boost to Ecolab's revenue. One would be wrong, however. Although hygiene and disinfecting solutions have been in high demand this year, shutdowns hurt unrelated aspects of its business. Its top line is down 6% through the first nine months of the year, as it was in the third quarter alone. Income is down 26% and 25%, respectively, for the same periods. These relatively weak results may explain why Ecolab shares have trailed the overall market's big gains this year.
Investors may be missing the much bigger picture here, however. An end to the pandemic's logistical hurdles sets the stage for fresh growth of its currently stymied business lines, while a new sensitivity to infection and transmission risks should sustain the current demand for Ecolab's hygiene and sanitation solutions. As Barclays analyst Lauren Liebermann put it, "[C]onsumers and employees will demand that places not only 'be clean' but also 'show clean,'" ultimately growing the cleaning market 10% to 20% bigger than it was before the pandemic took hold.