After a volatile September, the market has gotten off to a solid start in October, with the S&P 500 index notching five of the first six days in the green. Historically, October has proven to be a good month for the market, but a lot of uncertainty remains with the delta variant still lingering, bond yields on the rise, the Federal Reserve talking about tapering its bond purchases, and with the debt ceiling debate in Washington bound to arise again before the end of the year. With all of the uncertainty, a panel of Motley Fool contributors has put together a trio of three top stocks to buy this month: Silvergate Capital (NYSE:SI), StoneCo (NASDAQ:STNE), and Universal Display (NASDAQ:OLED). Here is why each of these three picks has the potential to win big long-term.
Massive earnings potential at this crypto bank
Bram Berkowitz (Silvergate Capital): Silvergate Capital has absolutely taken off recently, with shares up roughly 30% over the past week. Over the last year, the stock is up 863%. While Silvergate looks expensive, I believe the reward could be more than worth it with the amount of earnings potential at this bank, which operates in the cryptocurrency space.
Silvergate Capital has built a proprietary payments system called the Silvergate Exchange Network, which allows two parties on the network to clear transactions in real time 24 hours a day, 365 days per year. This has made the platform attractive for institutional traders and crypto exchanges that trade Bitcoin and other cryptocurrencies because cryptocurrencies trade around the clock. SEN has enabled Silvergate to add a lot of clients who bring in zero-cost deposits and that it can also cross-sell other more traditional banking products to, which brings in fee income.
In just the first half of the year, SEN has onboarded a ton of new clients, enabling the bank to grow from roughly $5.3 billion in deposits to more than $11 billion. Deposits have grown so fast that Silvergate has invested more than half of its total assets into securities yielding just 1.35% on average. This makes Silvergate incredibly asset-sensitive, meaning that when rates rise more of its assets will reprice higher with interest rates, while many of its zero-cost deposits will not move higher, increasing the bank’s margins. According to Silvergate’s most recent regulatory filing, a 1% move in the Federal Reserve’s federal funds rate would send net interest income at the bank, essentially the money the bank makes on its loan and securities portfolios, up nearly 52% over the next year. To add some perspective, Bank of America, one of the most asset-sensitive banks, would only see net interest income rise about 20% in a similar situation.
Silvergate also has an absolutely enormous opportunity in the stablecoin space. Stablecoins are are digital assets pegged to a commodity or another currency like the U.S. dollar. SEN currently serves all of the major U.S. stablecoin…