Last year we had historically low volatility. Long-term investors loved it, as the major U.S. indices churned out record profits. Short-term traders? Not so much.
They want some volatility and 2018’s reversion back to some normal volatility levels has been refreshing. Plus, these bouts of volatility can give long-term investors the buying opportunity they’ve been looking for.
With that in mind, here are three rocket stocks to keep an eye on this year.
Rocket Stocks No. 1: Netflix (NFLX)
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Up 70% this year and 103% over the past 12 months, Netflix, Inc. (NASDAQ:NFLX) stock certainly qualifies as one of our rocket stocks. The company continues to crush all forms of analyst estimates: domestic and international subscribers, earnings and revenue.
When combined with the fact that NFLX is leading the cord-cutting disruption, there’s little reason to bet against the streaming giant.
There are a few negatives, the most glaring being Netflix’s valuation. At 114 times this year’s earnings, it’s expensive and Netflix commands a market cap just short of Walt Disney Co (NYSE:DIS). But valuing a game-changing company is admittedly difficult. Amazon.com, Inc. (NASDAQ:AMZN) has never been cheap and look at what it has accomplished.
NFLX is also spending a ton of money on content, with an $8 billion budget for 2018. For comparison, that’s roughly 50% of this year’s revenue. But who am I to critique CEO Reed Hastings’ strategy?
As for the stock, Netflix stock continues to bump up against resistance near $330. A push through that level could ignite a further rally. Surprisingly, Netflix isn’t overbought and momentum doesn’t seem to be exhausting either, (blue circles on chart).
Rocket Stocks No. 2: Box (BOX)
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Where did this move come from? Box Inc (NYSE:BOX) has been trending higher over the past year, but has been struggling to push through the $24 level.
In December we began pleading our bull case for BOX stock, saying that it’s a buy at $20. It’s long-term initiatives in the cloud, large client base of big companies and recent A.I.-based solutions were attractive to us. Plus, its sub-$3 billion market cap made it a takeover target.
Of course, no one listened to us. Instead, it being called a top-pick at the Sohn Conference a few weeks ago is what ignited Box stock. Shares are now up 30% in 2018 and 50% over the past year, it’s already popping around $27.
Where to now? Short of a buyout (which co-founder and CEO Aaron Levie has been against in the past) it seems like Box needs to cool off. Yes, rocket stocks sometimes needs to turn off the jets in order to ensure more rallies can come. I’d rather see BOX stock pullback some and/or consolidate before pressing higher. I would surely be a buyer on a retest of $24.
Rocket Stocks No. 3: IQiyi (IQ)
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Referred to as the Netflix of China, IQiyi, Inc (NASDAQ:IQ) stock has been rather rambunctious as of late. IQ is a tough investment, being as though it’s a NASDAQ-listed ADR that very few American investors are familiar with. For those looking, the company’s prospectus can be found here.
The service launched in April 2010 and according to its prospectus, Baidu Inc (ADR) (NASDAQ:BIDU), the Chinese Google, owned about 70% of the company ahead of the IPO. However, that doesn’t include the allotment of almost 37 million class B shares it will likely receive at the end of the month.
As a result, BIDU remains the controlling shareholder in IQ. The two companies have a lot of collaboration opportunities, with BIDU able to help IQ on search, A.I. and cloud-infrastructure.
IQ had revenue of RMB 5.3 billion at year-end 2015. By year-end 2017, that figure swelled to RMB 17.4 billion or about $2.67 billion. With a market cap of $13 billion, IQ trades at roughly 4.9 times 2017 sales. For reference, NFLX trades at more than 12 times 2017 sales.
Two years ago IQ had 10.7 million subscribers, a figure that has swelled to more than 50 million as of December 2017. Further, each user spends about 1.7 hours per day on the platform. Finally, IQiyi has become the first online video platform to obtain “certification from China’s top digital rights organization.”
IQ may not be a no-brainer buy, but it’s definitely worth looking into.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long DIS, BOX and IQ.
