We recently compiled a list of the 12 Best Small Cap Tech Stocks to Buy. In this article, we are going to take a look at where NCR Voyix Corp. (NYSE:VYX) stands against the best small-cap tech stocks to buy.
US Inflation and the Anticipated Fed Cuts
Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.
AP News reported that Fed officials think that inflation is steadily declining towards their 2% target. Reducing the Fed’s benchmark rate is expected to lower borrowing costs for consumers and businesses. Christopher Waller, a key Fed policymaker, noted that over half of tracked goods and services have seen annual inflation drop below 2.5%.
Craig Johnson, Chief Market Technician at Piper Sandler & Co., and Gene Goldman, Cetera’s CIO, recently came together to discuss the Fed’s interest rate cuts, and stock sector performance.
Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated. Goldman acknowledged that political uncertainties could also contribute to market fluctuations.
Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.
Johnson acknowledged that while there has been a recent pullback, particularly following the worst week for the markets since March 2023, there has been a rebound with the Nasdaq and S&P showing positive movements. He highlighted the necessity of dissecting the performance of the MAG 7 tech stocks, which he believes are now lagging. Instead, he pointed out that there are promising stocks within the $2 to $10 billion range that demonstrate solid growth potential, both at the top and bottom lines, and appear constructive on the charts.
He noted the Nasdaq’s 0.75% rebound but referred to it as a dead cat bounce, indicating that a more substantial recovery of 8-10% could be on the horizon. He attributed the day’s positive market sentiment to an employment report that exceeded expectations.
Methodology
We used stock screeners to look for companies trading between $1 billion and $10 billion, that’s our definition of small-cap stocks. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NCR Voyix Corp. (NYSE:VYX)
Market Capitalization as of September 11: $1.74 billion
Number of Hedge Fund Holders: 43
NCR Voyix Corp. (NYSE: VYX) is a leading global provider of digital commerce solutions, specializing in transforming retail stores, restaurant systems, credit unions, and digital banking experiences through its comprehensive platform-led SaaS and services capabilities, helping businesses enhance their customer interactions and operations using technology. It serves over 800 banks and credit unions in the U.S., including nearly 21 million active users.
The company’s revenue fell by 55.89% year-over-year in Q2 2024. The earnings per share were $0.09. NCR Voyix Corp. (NYSE:VYX) is selling its digital banking segment, which could boost performance. It will be divested to Veritas Capital for a $2.45 billion purchase price, plus up to $100 million of contingent consideration. By the end of 2023, this segment had a revenue of $579 million, employing over 1,600 employees across 7 global facilities and ~1,300 financial institutions in North America.
It recently partnered with Ennoconn Corp., a leading hardware provider for both point-of-sale and self-checkout. The company also implemented a multiphase cost-alignment program, which began with the elimination of approximately 800 staff globally, at the end of Q2.
The company’s recent performance has not been spectacular, but these issues are being resolved — a sale could be a positive move in this direction. The full-year guidance for 2024 was updated to remove the revenue associated with the Digital Banking business. 43 hedge funds still hold long positions in the company, with a collective 6,286,029 shares. The highest stake amounts to $77,632,458, held by Engaged Capital.
ClearBridge Mid Cap Strategy stated the following regarding NCR Voyix Corporation (NYSE:VYX) in its first quarter 2024 investor letter:
“Stock selection in the IT sector also weighed on performance. Investor excitement for AI has driven outperformance in hypergrowth companies but weighed on several of our holdings with more conservative outlooks, which are typically appropriate this early in the year. This included NCR Voyix Corporation (NYSE:VYX), which provides software, consulting and technology services for digital commerce and automatic teller machines (ATMs). Under new direction since the spinoff of NCR Atleos in the fourth quarter of 2023, the stock is still looking for solidification of its investor base. However, we are encouraged by the company’s focus on recurring revenue streams, which should allow it to grow at an attractive pace. Additionally, we believe that NCR Voyix’s current valuation is approximately equivalent to the value of its digital banking segment alone, which should merit further upward price movement.”
Overall VYX ranks 10th on our list of the best small-cap tech stocks to buy. While we acknowledge the potential of VYX as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
