Morning Watchlist: Wednesday Edition
A quick note from Behind the Markets
It's midweek. And the loudest market move of the week so far happened 4,700 miles from Wall Street.
On Monday, Brazil's stock market rose 7.7% in a single session — its biggest day since March 2020 — after a presidential election almost nobody predicted. The currency jumped 4%. Brazilian bank stocks listed in New York gained 10% to 14% between breakfast and lunch.
When an entire country reprices in a day, the crowd buys the obvious tickets. We'd rather look at what they walked past. Three stories this morning. Three pairings. Let's get into it.
1) The Polls Missed an Entire Country
On Sunday, Brazil voted. Nearly every pre-election poll had President Lula ahead. Instead, Senator Flávio Bolsonaro — son of the former president — led the first round with 47.0% of the vote to Lula's 45.2%, carrying 15 of Brazil's 27 states. The runoff is October 25th.
Markets did the math before breakfast. The Ibovespa surged 7.7% to a record 206,912. The real strengthened 4%, its best level since May. In New York, Bradesco jumped 13.6%, Itaú 10.4%, and XP — Brazil's big retail brokerage — rose 33%, its best day ever. The bet behind all of it: a market-friendly government, tighter budgets, and eventually lower rates.
Here's our problem with the obvious trade. A first-round rally is a celebration at halftime. Nobody has been elected, and the market is now leaning its whole weight on the same polling industry that just missed an entire country.
So we won't chase a brokerage stock up 33% in a day. But one Brazilian stock is so cheap that even Monday's pop barely dented the valuation.
The pairing: StoneCo (STNE) — Watch
StoneCo puts card terminals on the counters of Brazilian shops and restaurants, processes the payments that cross them, and lends those same merchants money. It jumped 21% Monday to $11.54 — and still trades at about 5 times next year's expected earnings. The S&P 500: 21 times. It's a $2.7 billion mid-cap still 41% below its 52-week high, and seventeen analysts rate it a Buy with an average target of $14.81 — 28% above the price even after the pop.
Why so cheap? Brazil's benchmark rate — the Selic, their version of the Fed funds rate — sits near 15%, and StoneCo funds its merchant loans off that benchmark. Lending where money costs 15% a year is swimming with a weight belt on. That's why the election matters more here than at the banks the crowd bought: if tighter budgets let the central bank cut, the relief lands directly on StoneCo's funding line.
So why Watch and not Buy? Because this thesis rests on an election that hasn't happened, forecast by polls that just missed. The entrance: the October 25th runoff confirming the shift with the stock still below the analysts' targets — or a Lula win knocking the aisle back toward the $9 low, where the politics would finally be paid for. Either way, we'll buy a result, not a forecast. The kill: StoneCo's own credit book souring — a lender's cheap multiple is only cheap if the loans come back.
One grade from our own shelf: Embraer slipped 3.3% Monday — a stronger real makes Brazilian exports pricier. The $34.5 billion backlog we bought on September 9th doesn't trade on one currency day. Still Buy.
2) The Last Jar on the Shelf
Monday's biggest deal at home: Schneider Electric, the French industrial giant, agreed to buy PTC — the Boston company whose software engineers use to design products — for $205 a share in cash. That's $23.7 billion, a 42% premium to Friday's close.
Now read the aisle, not the deal. Schneider took AVEVA private in 2023. Emerson swallowed Aspen Technology and National Instruments. Siemens bought Altair. Synopsys paid $35 billion for ANSYS. And now PTC. One by one, the industrial giants have decided the software that designs the physical world is worth paying 40% premiums for.
Each deal takes a jar off the shelf. The shelf is nearly empty.
The pairing: Bentley Systems (BSY) — Buy
Bentley makes the software engineers use to design infrastructure — bridges, roads, water systems, power grids — and it's one of the last large independents left in the aisle. The stock rose 7.8% Monday to $34.75 on the read-across, and still sits roughly 39% below its 52-week high, at about 24 times next year's expected earnings — a premium to the S&P's 21, for a subscription business growing revenue 13% a year. Seventeen analysts rate it a Buy, average target $43.93, 26% above the price. One detail we can't ignore: Schneider itself was reported in merger talks with Bentley in early 2024 before they fizzled. The buyer that just paid a 42% premium for a comparable has appraised this house before.
As we said at PayPal, Zimmer Biomet, and Brown-Forman: the appraisal is not the thesis. The thesis is that infrastructure spending — roads, grids, data centers — flows through Bentley's long-lived subscriptions whoever builds what. The honest risks: the founding Bentley family controls the company through super-voting shares, so nobody buys it without their blessing (the Brown-Forman caveat); 24 times needs the growth to keep arriving; and 5% money can slow the projects its customers design. The kill: subscription growth breaking below double digits.
3) Fertilizer Is Natural Gas in a Different Suit
Quietly on Monday, Nutrien — the world's largest fertilizer company — said it will shut its Trinidad nitrogen operations indefinitely. The Point Lisas plants made about 85,000 tonnes of ammonia and 55,000 tonnes of urea a month, and Trinidad has long been one of the biggest suppliers of imported ammonia to the United States. The reason for the shutdown: the island can't get enough natural gas.
That sentence is the whole nitrogen business. Ammonia is made by pulling nitrogen out of the air and bonding it with hydrogen from natural gas — gas is most of the cost of every tonne. So the world's fertilizer map is really a natural gas map, and right now that map is lopsided: U.S. gas trades at $3.03 per MMBtu. Europe's benchmark: $24.49, up 127% since February. Asia's: $26. Wherever gas is dear, fertilizer plants are hanging closed signs. Where it's cheap, they're printing money.
The pairing: CF Industries (CF) — Buy
CF is North America's nitrogen giant, and its plants sit on top of the cheapest industrial gas on Earth. It's the bakery whose flour costs $3 a sack while every rival across the ocean pays $24 — and a competitor just closed its doors. Earnings per share grew 77% over the past year, and at Monday's $116.02 the stock trades at about 9 times earnings, trailing and forward alike. The S&P 500: 21. The dividend, raised 20% in July, yields 2.1%. A large cap, but the pairing is the strength — the Goldman exception.
And the crowd? Twenty-two analysts rate it a Hold — yet their average target of $127.69 sits above the price — the absent-crowd setup we bought at Zimmer, Lincoln, and Ingredion. Bernstein just initiated at Outperform with a $162 target. The honest risks: a U.S. gas spike would close the arbitrage, though storage heading toward its second-highest October on record leans against that; fertilizer prices are cyclical; a squeezed farm belt can cut application for a season; and the Louisiana low-carbon ammonia plant CF is building is a multiyear capital bill. The kill: Henry Hub converging with world gas prices — cheap flour is the whole recipe.
Before You Go
Busy Wednesday. Prime Big Deal Days wraps up today — the live test of our GXO call. At 2 PM the Fed publishes the minutes of the September meeting it hiked at, and the Treasury auctions $39 billion of 10-year notes into a yield near 5.27% — Tradeweb gets paid on the arguing either way.
Two quick grades: Berkshire added another 2.4 million Lennar shares, taking its stake to about 12% — conviction is rising, but our entrance still needs a margin floor and a friendlier Fed, so still Watch. And oil slid below $88 as Gulf exports recovered to 81% of pre-war levels — the "cheerful loss" we named at Magnolia and Darling keeps arriving on schedule; ONEOK is paid per barrel either way, and Copa's unhedged fuel bill gets lighter.
That's the watchlist: a halftime celebration in São Paulo we'll grade after the final whistle, the last jar in the industrial-software aisle, and a fertilizer maker paying $3 for what its rivals buy at $24. One theme, as always: the best opportunities stand one step behind the headline.
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Written by Behind the Markets