Monday opened bleakly for investors, with all sorts of stocks falling on troubling news from Japan. The Bank of Japan raised interest rates by only 15 basis points -- from 0.1% to 0.25% -- but currency traders worry that even this tiny increase will threaten the yen carry trade, whereby traders borrow cheap money in yen, then use it to buy dollar-denominated debt to capture higher interest rates.
As this trend reverses, traders might sell U.S. debt and stocks to pay off their yen-denominated debts, strengthening Japanese markets but damaging U.S. investments.
Shares of Clorox(NYSE: CLX), Twilio(NYSE: TWLO) and Atlassian(NASDAQ: TEAM) sold off this morning. The good news is that as the day wore on, panic was subsiding. As of 12:15 p.m. ET on Monday, Clorox was off only 0.5%, Twilio was down 3.8%, and Atlassian was actually up 1.6%. But why did these specific stocks fall in the first place?
A downgrade for all three
You wouldn't ordinarily link consumer goods company Clorox with techs like cloud communications company Twilio and collaboration software provider Atlassian. But as it turns out, these three stocks have something in common (in addition to being victims of the yen carry trade). This morning, Barclays cut price targets on each of them.
Barclays' reasons varied. According to TheFly.com, Clorox was cut over weak sales trends (down 6% last quarter). The bank also worries that Twilio's 4% sales growth isn't strong enough to justify its 2.6 times sales valuation. Atlassian, on the other hand, grew sales 20% in its most recent quarter.
Which of these stocks should you buy?
While Barclays cut price targets on all three, Atlassian is the only one the bank believes is a buy, valuing the $147 stock at $250 a share.
I agree, and I view net-debt-free Atlassian as a better bargain than debt-laden Clorox. But I also like Twilio. Last quarter's sales weren't great, but most analysts forecast it will grow earnings at 30% over the next five years. At a price-to-free- cash-flow ratio of just 12, Twilio stock looks cheap to me as well.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian and Twilio. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
