Top Picks 2020: New Relic (NEWR) and PagSeguero (PAGS)

01/14/2020 5:00 am EST


Matthew Castel

Head of Strategy, Logos LP

We look for businesses that possess superior economics or "high moats" and thus are expanding value; here are two that stand out as new ideas for 2020, notes money manager Matthew Castel, value-oriented money manager with Logos, LP.

New Relic (NEWR) provides analytic and data monitoring software for DevOps teams. Company is trading a little over 6x sales with ~80% gross margin. The stock is down 47% from 2018 and free cash flow has nearly quintupled since then.

The company is currently transitioning into New Relic One Platform — which will be a great catalyst.  New Relic has more free cash flow than companies like Zscaler (ZS) with a similar growth profile — while trading at nearly half the market cap.

PagSeguero Digital (PAGS) is coming off a difficult third and fourth quarter of 2019 as the stock dropped nearly 40% since December and has only recently taken a pop upwards.

We think this a strong growth name as it serves the "unbanked" in Brazil (there are over 60 million unbanked people in the country) in addition to small merchants.

We think the quants are going to shoot over on emerging markets come early 2020 as they have been underweight all year and we think this is a perfect opportunity to get exposed to Brazil with a high ROIC model and high growth business that is virtual banking and payments.

This stock is jumpy but we think there are secular growth tailwinds going into the New Year will propel the stock meaningfully higher.

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