It appeared that 2017 was going to be nothing but go-go gains as the stock market embraced President Donald Trump and what likely would be a very pro-business administration. The rising tide — the S&P 500 gained about 15% from the election through early March — lifted most names, which meant investors had to do little work in sniffing out stocks to buy for big upside.
Almost everything had big upside!
But the tables are starting to turn. The S&P 500 actually fell roughly 1% in March, ending a multimonth winning streak. Volatility is creeping back in. That doesn’t mean investors are out of ways to make their gains. It just means finding the best stocks to buy will take a deeper look.
The obvious choices are now the most overbought choices. Anything that has run up like crazy has also gotten a lot of press, so Wall Street is now plenty aware that these winners don’t necessarily have much more room to run. Look at cases like Nvidia Corporation (NASDAQ:NVDA), which ran up more than 220% in 2016, and started 2017 off hot but now is staring down a loss for the year-to-date. And that’s despite the fact that Nvidia has a very tangible bullish case on the business side!
Your best shot for outperformance for the rest of the year is in underrated, undercovered stocks that don’t get the same love that their peers and other blue-chip stocks get.
Are there risks? Absolutely. These are smaller companies, many of which have fewer resources, and some of them trade at relatively thin volume. But their lack of coverage means that many people don’t understand the upside opportunities, so when they get hot, a lot of looky-loos will start pouring in, too.
Here’s a look at 10 under-the-radar stocks to buy now.
Under-the-Radar Stocks to Buy: Barracuda Networks (CUDA)
Cybersecurity is a big-time issue that’s never going away, and only going to become more essential as more people and things become connected to the internet. During the much-heated presidential debate last year, cybersecurity was front and center. Even now, the White House is preoccupied with allegations of Russian hacking.
Dramatic headlines such as the ones we’re watching provide the impetus for network security firms like Barracuda Networks Inc (NYSE:CUDA).
I like Barracuda for numerous reasons, including its focus on the growing trend of ransomware. This is a type of malware that involves hackers compromising one’s critical data, and then offering to return control of the data once a ransom has been paid. It’s a brutal scam that is both frustrating and infuriating.
Past that, Barracuda focuses on other applications of cybersecurity, but also offers solutions for networking and storage.
CUDA doesn’t generate a lot of press compared to Palo Alto Networks Inc (NYSE:PANW) or FireEye Inc (NASDAQ:FEYE), and while its revenues are growing like weeds, the company still hasn’t been able to record an annual profit. But that’s on pace to change this year, and success on that front should send the bulls into a frenzy.
Under-the-Radar Stocks to Buy: Axcelis Technologies (ACLS)
Semiconductor companies are the hotness right now, with Advanced Micro Devices, Inc. (NASDAQ:AMD) and Micron Technology, Inc. (NASDAQ:MU) among charging members of the industry. It’s a welcome change for the industry, but much of the attention was paid to the big boys.
Companies like Axcelis Technologies Inc (NASDAQ:ACLS) have hardly registered among the masses — but that could be an opportunity when Wall Street finally moves away from extremely overbought superstars and tries to find other opportunities in the chip space.
Axcelis actually helps chipmakers do what they do, offering things such as ion implantation systems, which are “one of the most critical and enabling steps in the IC manufacturing process.” The company also is building up its Purion line, which is designed for planar and 3D devices.
Shares of Axcelis — which among other things produces the Purion ACLS shares, to their credit, are up about 60% over the past year, including a 20%-plus run in 2017.
Axcelis features a decent balance sheet with about $71 million in cash versus $46 million in total debt, and the company flipped to profitability over the past two years after bleeding out for the better part of the past decade.
ACLS isn’t the best-known name in the semiconductor industry, but it might be one of the best buys left that isn’t overcrowded.
Under-the-Radar Stocks to Buy: HudBay Minerals (HBM)
HudBay Minerals Inc (NYSE:HBM) is a Canadian-based mining company that primarily focuses on copper concentrate, but also mines for zinc.
Since the commodities peak in 2011, base and precious metals have both become extremely hit-or-miss, with a lot more misses over the past couple years. Mining stocks have taken a beating across the board — and for good reason. Why buy into companies that can’t cover their production costs?
That burden hit Hudbay Minerals, too. The thing is, many of Hudbay’s peers couldn’t carry on, and HBM was able to tough it out. both base and precious metals became hit or miss. But within two years, commodities were decidedly a bearish opportunity. Not surprisingly, mining stocks took an absolute beating. After all, what point was there to buy into a company where the selling price of its products was below the production cost?
Many of HudBay’s peers could no longer carry on. However, HBM was able to tough it out. Now, it’s back on the upswing, more than doubling over the past year as the top and bottom lines bounce back. Revenues have roughly tripled from 2014 levels, and while the company did lose nearly $47 million last year, that was roughly a 10th of what it lost the previous year.
Analysts are improving their estimates on HudBay’s operational results, and the future looks bright. This is a $7 stock, so there’s still plenty of volatility, but HBM still represents one of the more attractive mining stocks to buy right now.
Under-the-Radar Stocks to Buy: Flotek Industries (FTK)
Just like commodities, the energy market is a hazardous place to ply your trade. One day, you’re on top of the world. The next, you’re struggling to make ends meet.
It’s both the allure and the risk of the resource-based economy — something that’s very familiar to Flotek Industries Inc (NYSE:FTK).
Let’s be blunt: The numbers have been ugly for years. As a supplier of drilling and production equipment to both energy and mining companies, FTK received a double dose of pain starting in 2014, when oil prices began their precipitous slide. This killed off multiple independent energy companies, and to compound matters, the metals mining industry was falling, providing no respite for Flotek.
In 2014, the company earned 71 cents per share. Last year, it earned just 3 cents.
However, Flotek is recovering with the rest of the energy sector, and is expected to post a 50% increase to adjusted earnings this year before more than tripling them in 2017. Meanwhile, revenue estimates for the next two years stand at 46% and 31% improvement to $382.8 million and $502.9 million, respectively.
When it comes to energy rebounds, Flotek isn’t the first, second, 10th or 20th name people discuss, but that lack of coverage will serve it well once analysts get wise to the company’s breakneck 30% gains so far in 2017.
There’s robust potential in this under-the-radar play.
Under-the-Radar Stocks to Buy: Rosetta Stone (RST)
Rosetta Stone Inc (NYSE:RST) is a name you almost surely know, but not because it’s a hot-trading stock.
You’re probably just familiar with the commercials.
For the longest time, Americans have had the stigma of being the worst tourists. The term “ugly American” was developed as a pejorative against whiny and demanding “gringos” who would rather find a McDonald’s Corporation (NYSE:MCD) joint than try the local culinary flavor. Although other countries like Russia and China are playing catchup, apparently no one out-uglies Americans!
But Rosetta Stone’s language-teaching software hopes to change that, and of late, the stock is putting in one heckuva turnaround. That’s in large part because the company’s fundamentals are starting to turn around. Moreover, analysts see that red ink halving in the current year.
And next year, Wall Street pros see Rosetta Stone returning to revenue growth — by double digits, no less!
I firmly believe that the era of the “ugly American” is coming to an end. The internet and globalization are shrinking our world, and multilingualism is becoming increasingly necessary in the business world. That should prove a boon for Rosetta Stone, which is a real potential comeback story in this list of stocks to buy.
Under-the-Radar Stocks to Buy: Approach Resources (AREX)
Approach Resources Inc. (NASDAQ:AREX) doesn’t give you any hints based off its name, but this company focuses on the “acquisition of unconventional oil and gas reserves in the Midland Basin” in West Texas.
That’s just its way of saying “shale gas.”
The shale gas industry faced severe pressure during the energy and commodities selloff starting in 2014, but Approach was already on the downswing — AREX was in the midst of what currently is a roughly 95% decline from its 2012 peaks. Revenues have tumbled, and once 2014 hit, the company ceased being profitable, too.
So, what’s to like here?
Approach Resources shed some assets and has improved its hedging strategies, and it cut into its losses last year. Now the company is ramping up capex, with the goal of getting Q4 2017 production higher than 2016 levels. Meanwhile, its proven reserves of 156.4 million barrels of oil equivalent (boe), while lower than last year’s figure, is only so by a small amount, and still at reasonable levels.
Wall Street is projecting double-digit top-line growth this year (30%) and next (17%), and the company is expected to shave about 80% off its bottom-line deficit this year, to just 27 cents per share.
That’s not profitability, but it’s enough progress to get Wall Street to start buying into the turnaround in the small-cap energy play.
Under-the-Radar Stocks to Buy: Kratos Defense & Security Solutions (KTOS)
Whenever the discussion of defense stocks comes up, people almost always refer to the major players: Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC), Raytheon Company (NYSE:RTN) and select others represent the elite of military contractors.
But there’s something to be said about the likes of smaller outfits such as Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), which has put those bigger players to shame as far as gains are concerned.
Kratos has many of the same toys that the big boys develop, including missile defense systems and unmanned military assets. However, modern warfare is definitely trending toward unconventional platforms. To address dynamic vulnerabilities, KTOS has specialized divisions that focus on areas such as cybersecurity and electronic warfare. Furthermore, KTOS has a public safety and security division — a much-needed solution in the wake of rogue terrorist activities.
The danger here is Kratos’ losses. While the company posted an adjusted loss of 7 cents per share last year, the real (GAAP) number was 99 cents per share — nearly double the previous year’s net loss.
But KTOS has been bid higher regardless, and the company’s adjusted figures are expected to improve over the next two years. So even if Kratos continues to bleed, simply stemming the tide should be enough to keep the bullishness alive.
Under-the-Radar Stocks to Buy: Choice Hotels (CHH)
When the market took off following the election, a lot of the gains were predictable. Manufacturing stocks roared as a result of Donald Trump’s promises for a massive infrastructure spend. Banks flew higher amid the idea that regulations would become a thing of the past.
Quietly, Choice Hotels International Inc (NYSE:CHH) and the rest of the hotel industry tagged along for the ride.
Since early November, Choice Hotels — which operates a bevy of hotel brands, including Comfort Suites, Quality, Sleep Inn, Econo Lodge and Cambria Hotels & Suites — took off to the tune of nearly 30%.
There’s no great secret here: If Trump can keep the economy on its upward pace — and the blowout ADP growth just reported April 5 seems to indicate that’s the case — that will mean more money in the pockets of Americans, who will be better able to travel. And because that should hit many Americans in the middle and lower classes, that should help the occupancy of Choice’s hotels, which are more discount-oriented.
Under-the-Radar Stocks to Buy: Cempra (CEMP)
Gonorrhea is a nasty disease that (understandably) few people want to talk about. But for pharmaceutical companies like Cempra Inc (NASDAQ:CEMP), gonorrhea is serious business.
Long thought to be a well-controlled disease, cases surged in western countries like the U.K. several years ago. To combat the epidemic, pharmaceutical companies such as Cempra began research on new next-generation therapies.
Contrary to portrayals in Hollywood, the biggest biological threat isn’t just limited to wild, exotic diseases. According to the CEMP website, “Antibiotic-resistant bacterial pathogens have been a rising threat to human health for several years. Effectiveness of many antibacterial agents has declined worldwide limiting physicians’ options to treat serious infections.”
In other words, old diseases can learn new tricks.
Cempra is a mere $200 million company that trades around $4 per share, and its gonorrhea drug solithromycin is the big hope. However, the company has run into a few hurdles, including a February setback in which the drug didn’t hit its endpoint. That said, Cempra is continuing to work with the NIAID and FDA in an attempt to get its drug through later-stage trials. On the flipside, the company has seen success in a phase 3 study of oral fusidic acid — a treatment targeting acute bacterial skin and skin structure infections.
This stock is very much on the speculative side, but it’s a speculative “bargain” if it can turnaround its solithromycin program.
Under-the-Radar Stocks to Buy: Lonmin (LNMIY)
Last, we have Lonmin Plc (ADR) (OTCMKTS:LNMIY).
First, full disclosure: This company is as under-the-radar as it gets. Lonmin is a $307 million stock that’s located in London and only trades in America via over-the-counter ADRs, and only about 8,000 shares trade hands every day.
A long way of saying, there’s some risk here.
So why LNMIY? Lonmin is one of the few mining companies that primarily focuses on the production of platinum group metals (PGMs), which consist of rare metals such as platinum, iridium and palladium, and are used heavily in things like electronics, chemicals and even dental applications. Lonmin also points out that gold, copper, nickel, chrome and cobalt are byproducts from its mining.
In addition to their rarity, PGMs are often found in not-so-friendly parts of the world. For instance, most of the world’s palladium is supplied by Russia. Current Cold War tensions further complicate the supply demand picture, potentially boosting LNMIY.
In friendlier countries like South Africa, diplomatic challenges are replaced by labor concerns. Going a mile deep into the earth isn’t exactly a safe occupation. As crazy as it sounds, miners want to be compensated for their troubles. And this leads to yet another source of potential supply constraints. The laborers know that PGMs are essential to the workings of modern society and are willing to play hardball.
Still, Lonmin is a play on a continued growing need for these metals, and the company recently swung to a $7 million loss after bleeding $134 million in 2015, plus it more than doubled its cash holdings.
It’s a risky play, and not a well-known one, but LNMIY’s gains can be your little secret.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.