About halfway through the ninth year of one of the greatest bull markets in American history, momentum stocks might be the just the ticket for investors as we edge closer to the end of the party.
Some experts argue that value stocks are ready to push growth stocks out of the spotlight after five years of seeing hot stocks rule the markets.
However, the opposite argument also holds true, because as long as investors remain comfortable owning expensive FANG stocks, a phenomenon that likely won’t change until this select group of tech stocks stops delivering higher earnings and prices, people are going to keep buying them.
That’s not necessarily as risky a proposition as you might think.
Doug Ramsey, the chief investment officer of Minneapolis-based institutional research firm The Leuthold Group, recently discussed why momentum stocks could do well in the second half of 2017.
“The most likely scenario would be new, narrower highs in big mega-tech stocks — the FANG group,” Ramsey told CNBC on Aug. 10. “Historically, there is a very strong tendency for momentum stocks to do very well in the last innings.”
So, while it appears the bull market is on its last legs, if you want to make one last big score, these are the seven hot stocks to buy now.
7 Hot Stocks to Buy: Stamps.com (STMP)
Market Cap: $3.5B
% Return Past Month: 41.6%
If there’s a company that by all rights should be out of business, it’s Stamps.com Inc. (NASDAQ:STMP). Around since 1996, back when people regularly bought stamps, I never would have guessed that 20 years later it would still exist, let alone be making a ton of money, but that’s what the California company is doing.
What saved the company is the rapid growth in e-commerce and the four acquisitions it made between 2014 and 2016. Without both of these events, we’d be talking about an entirely different company.
In the second quarter, ended June 30, 2017, Stamp.com’s revenue and operating income increased 38.2% and 67% respectively, to $116.1 million and $41.7 million.
Two numbers explain its growth in the second quarter. First, the average number of paid customers increased by 14.2% to 738,000. Secondly, the average monthly revenue per paid customer rose by 20.1% to $50.51. It has three other revenue streams, but its service revenue accounts for 88.5% of its overall sales.
Although Stamps.com is the least expected of these seven hot stocks to buy, it is at the top of my list because it’s a tedious but necessary business.
7 Hot Stocks to Buy: Weight Watchers (WTW)
Market Cap: $3B
% Return Past Month: 32%
If you’ve got to lose weight or you simply need to keep off what you’ve lost, Oprah Winfrey wants to recruit you to Weight Watchers International, Inc. (NYSE:WTW).
As recently as the past 52 weeks, WTW stock traded below $10. Then the company announced in late April that former HSN, Inc. (NASDAQ:HSNI) CEO Mindy Grossman would take the reins in July. Its stock is up 138% since her hiring through Aug. 11.
Oprah loves her and so do I. As CEOs go, she’s one of the best. On Aug. 2, the day before Weight Watchers released its second-quarter earnings, I recommended investors buy WTW stock regardless of what the earnings were.
Well, they were awesome, and with Grossman leading the company, it has got a great chance of returning to the level of profitability it experienced earlier in the decade.
The combination of Grossman and Winfrey is an absolute home run. Avoid this stock at your peril.
7 Hot Stocks to Buy: Kemper (KMPR)
Market Cap: $2.5B
% Return Past Month: 34.3%
As a kid, I loved John Wayne’s trio of cavalry movies made with director John Ford where Wayne played an aging U.S. Cavalry Captain. As a result, I remember Kemper Corp (NYSE:KMPR) to this day because of its 1980s TV commercials with the U.S. Cavalry starring in them.
I’ve long since lost track of Kemper, the insurance company, but an almost 35% move over the past month has me recalling more than John Wayne movies.
What has got investors so hot and bothered?
The company’s turnaround plan, first announced last September, is starting to gain traction. The company altered its business to go after underserved markets in consumer-related businesses including life, health, and property & casualty insurance.
CEO Joe Lacher, a veteran in the insurance industry, was hired by the company in November 2015 to come in and turn around its business.
Kemper announced strong Q2 2017 earnings Aug. 1 sending KMPR stock rocketing higher. While revenues increased 9% in the second quarter to $684.4 million, it was the 356.5% increase in its consolidated net operating income that got investors revved up.
All three of its business segments made money in the second quarter as a result of its focus on profitable business generated at a reasonable expense.
While many think its stock is overbought, I see it just getting started.
7 Hot Stocks to Buy: Spark Therapeutics (ONCE)
Market Cap: $2.8B
% Return Past Month: 33%
The company uses gene therapy to tackle genetic diseases such as hemophilia and vision loss due to retinal dystrophy.
As you can imagine, this kind of work isn’t cheap. In the first six months of 2017, Spark lost $130 million from its operations on just $2.8 million in revenue. As a result of its cash drain, it sold $380.4 million of its stock Aug. 9 to provide additional funds to continue its clinical trials and work to commercial its gene therapies.
Although it doesn’t make money, it does have enough cash to fund its operations through 2021, so there’s plenty of time before investors need to worry about its long-term survival.
While this is the riskiest of the seven stocks recommended, its upside potential, like all biotechnology companies, is tremendous.
7 Hot Stocks to Buy: Michael Kors (KORS)
Market Cap: $6.6B
% Return Past Month: 29.4%
First, Michael Kors Holdings Ltd (NYSE:KORS) announced July 25 that it was buying luxury footwear brand Jimmy Choo for $1.4 billion, the first step in its plan to become a luxury retail conglomerate, not unlike LVMH Moet Hennessy Louis Vuitton SE(ADR) (OTCMKTS:LVMUY).
If CEO John Idol is half as successful as Bernard Arnault was building LVMH, shareholders ought to prepare for significant capital appreciation over the next three to five years.
Secondly, KORS announced Q1 earnings that exceeded the company’s expectations. KORS stock gained 21.5% on the news.
Although Michael Kors continues to transition from a single brand to a retail luxury conglomerate, the company’s guidance for the second quarter and the rest of fiscal 2018 is higher on both the top and bottom line.
Retail might be struggling, but the decision to buy Jimmy Choo and others in the future is the right call at this stage of the game.
7 Hot Stocks to Buy: Ubiquiti Networks (UBNT)
Market Cap: $5.3B
% Return Past Month: 29.1%
I’m not a fan of making CEOs stinking rich while the average person barely gets a raise each year. So you might think I wouldn’t like the news that Ubiquiti Networks Inc (NASDAQ:UBNT) CEO Robert Pera’s wealth increased by $600 million after the manufacturer of networking products announced fourth-quarter earnings Aug. 3 that were better than analyst expectations.
More importantly, UBNT announced that it would generate more than $1 billion revenue in fiscal 2018, the first time in the company’s history.
Interestingly, I’m not a big tech person, but while on vacation recently with my brother — who is — we happened to discuss mesh Wi-Fi, something Ubiquiti got into in 2016 with the release of Amplifi, a $200 router that’s intended to eliminate dead zones in your house or apartment’s Wi-Fi.
I’d gladly spend $200 for consistent Wi-Fi.
Oh, and by the way, Pera receives zero compensation from the company, a feat made possible by the fact he founded Ubiquiti in 2003 and owns almost 70% of UBNT stock.
That’s my kind of CEO.
7 Hot Stocks to Buy: TAL Education Group (TAL)
Market Cap: $8B
% Return Past Month: 22.8%
Earlier this year, I chimed in on China’s growing economy, recommending seven stocks to benefit from its renewed growth.
One of my picks was New Oriental Education & Tech Grp (ADR) (NYSE:EDU), a growing Chinese business that helps students of all ages prepare for exams, receive after-school tutoring, and take online educational courses.
Its stock is up 22.5% since my recommendation. However, it pales in comparison with TAL Education Group (ADR) (NYSE:TAL) which is up 22.8% in the last month alone.
TAL’s annual revenues are smaller than New Oriental’s, but they’re coming on like gangbusters, growing by 42.5% annually over the past five years, almost double its competitors.
TAL focuses exclusively on the K-12 market, generating 84% of its total revenue from after-school classroom tutoring along with personalized one-on-one instruction (11% of revenue) and online courses (5%).
If you believe in the idea of China becoming the world’s largest economy, an investment in either TAL or EDU should be at the top of your list.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.