PayPal, SS&C, Moody's Tipped for Growth by Portfolio Manager

Key Takeaway

• Adam Coons of Winthrop Capital Management recommends PayPal, SS&C Technologies, and Moody's as under-the-radar growth stocks with strong fundamentals.
• PayPal is highlighted for its fintech innovations and potential 18% upside; SS&C for its big data capabilities with a 13% upside.
• Moody's is noted for leveraging AI in data utilization, showing a modest 3% potential upside according to analysts' forecasts.

Selective Growth Opportunities

Amid a challenging period for major stocks, including those dubbed the "Magnificent Seven," investors are reevaluating the appeal of growth stocks in the current market environment. Adam Coons, a portfolio manager at Winthrop Capital Management, shared insights with CNBC Pro on May 1, emphasizing the potential of growth stocks to outperform value stocks. However, he advises a more discerning approach due to stretched valuations. Coons defines high-quality growth stocks as those with "real free cash flow from lower amounts of debt, resilient earnings, a strong balance sheet, and a sustainable business model over a 5-10 year time horizon." He underscores the importance of thorough valuation analysis, advocating for investments in companies with tangible revenue and earnings growth over those favored for their narrative alone.

Spotlight on Under-the-Radar Picks

Coons highlights three companies he believes are poised for significant growth: PayPal Holdings, SS&C Technologies, and Moody's. Each of these firms, he argues, stands out for specific strategic advantages within their sectors. PayPal, despite a significant drop from its 2021 peak, is lauded for its competitive pricing in the fintech ecosystem and its strategic investments in products like Venmo debit and credit cards, which Coons sees as central to the company's growth strategy. SS&C Technologies, with its substantial market share and vast data resources, is positioned as a future key player in big data. Moody's, known for its extensive data assets, is expected to leverage AI to enhance and monetize its data utilization more effectively. These companies have not only demonstrated strong market performance but also enjoy positive ratings and potential upside according to analysts' forecasts.

Analysts' Perspectives

The investment potential of Coons' selected stocks is further supported by analyst ratings and price targets. PayPal Holdings is recognized for its value proposition in the digital wallets and fintech space, with an average price target suggesting an 18% potential upside. SS&C Technologies, appreciated for its dominant market share and data capabilities, has a projected upside of 13%. Moody's, with its strategic use of AI and strong demand for its products, shows a more modest potential upside of around 3%. These assessments reflect a blend of current performance metrics and future growth expectations, underlining the importance of strategic investment choices in the growth stock domain.

Street Views

• Adam Coons, Winthrop Capital Management (Bullish on growth stocks):

  "Growth stocks will continue to outperform value stocks, generally speaking. But valuations are stretched so we are looking for higher quality names... We need to ask what we are really paying for the stock, rather than FOMO [fear of missing out] or just the story of what it hopes to achieve. I would stay away from growth stocks outperforming because of story and invest in those with real revenue and earnings growth."

• Adam Coons, Winthrop Capital Management (Bullish on PayPal Holdings):

  "When I look at it, I see it is cheap, plus it’s using its different products as a way of getting their customer into a routine of sticking with PayPal versus using all the different wallets that are out there. So I like the PayPal story."

• Adam Coons, Winthrop Capital Management (Bullish on SS&C Technologies):

  "Given the duopolistic nature of its industry, the company has a massive amount of data from both the investment security standpoint and from a user base... When we look into the future, they’re going to be one of the big data sources."

• Adam Coons, Winthrop Capital Management (Bullish on Moody's):

  "[Moody’s is] another company he likes for its tremendous amount of data... The portfolio manager sees the company leveraging on AI to utilize its data more effectively and eventually monetize it more."