Every year, the market produces a handful stocks that double over the course of 52 weeks. This was true even last year, when financial markets broadly had their worst year since the Recession. For example, stocks that more than doubled last year include Tandem Diabetes Care (NASDAQ:TNDM), Intelligent Systems (NYSEMKT:INS), Turtle Beach (NASDAQ:HEAR), Twilio (NASDAQ:TWLO), Glu Mobile (NASDAQ:GLUU), and Crocs (NASDAQ:CROX), among many, many others.
This year could be very special for the “stocks that could double” category for a few reasons.
First, we entered the year in the midst of a massive market-wide sell-off that took 20% off the broader indices, and much more off of certain stocks. Second, market headwinds which weighed on stocks in late 2018, are starting to clear up in 2019 (trade talks are improving and the rate hike trajectory is flattening). Third, U.S. economic data remains largely robust. Fourth, the combination of a big market sell-off against the backdrop of still healthy fundamentals left a bunch of stocks both oversold and undervalued heading into 2019.
Overall, then, this could be a great year for stocks that could double. The group of stocks that fit this label in 2019 should be larger than in previous years. Also, given that many market darlings were hit hardest during the late 2018 sell-off, it may include some market headline names.
With that in mind, let’s take a look at seven notable stocks that could double in 2019.
Stocks That Could Double In 2019: Facebook (FB)
The Fundamentals: Facebook (NASDAQ:FB) stock was killed in 2018 by a convergence of headwinds that ultimately cut into user growth, revenue growth and margins. Those headwinds could reverse course in 2019 and 2020. Negative media headlines that diluted usage are already largely moving into the rearview mirror — as they always do. FB is starting to monetize better through Stories and messages, two places which could reinvigorate ad-revenue growth in 2019/20. And, the company is already spending an arm and a leg on data security, so further investment seems unlikely, giving margins a chance to move higher.
The Numbers: Three months ago, Facebook’s 2019 EPS estimate stood around $8.30. Today, it sits around $7.40. That’s a whole dollar lost in EPS due to slower revenue growth and lower margins. But, if those trends reverse course in 2019/20, EPS estimates have a chance to move substantially higher. Fiscal 2020 EPS estimates currently sit at $8.50. If operations turn a corner in 2019, it’s likely that the 2020 EPS estimate moves up to $10. Improving sentiment could drive FB’s forward P/E multiple to 25. That combination implies a 2019 price target of $250, versus a ~$130 price tag heading into the year.
Stocks That Could Double In 2019: Canopy Growth (CGC)
The Fundamentals: Pot stocks went parabolic in 2018, led by market leader Canopy Growth (NYSE:CGC). Calendar 2019 should be more of the same. The global CBD market is rapidly expanding, with cannabis now legal across all of Canada and hemp legal across all of the U.S. Canopy Growth is capitalizing on and leading the charge in both of those markets, meaning this company is establishing dominance in two early stage, potentially huge markets. As these markets develop and mature over the course of 2019, Canopy’s sales, profits, and stock will soar.
The Numbers: Given overlaps in use-cases, there’s reason to believe that the global CBD market will be as big as the global alcohol and tobacco markets one day. Both of those markets are in the $700 billion to $1 trillion-plus range. Thus, projecting the global CBD market at $500 billion in ten years seems conservative. Canopy should easily be able to control about 5% of that market, and will likely run at alcoholic beverage market average 30% operating margins. That implies $25 billion in revenues, and $7.5 billion in operating profit in ten years. Taking out 20% for taxes and throwing a market-average 16x multiple on the net profits, one can easily see how CGC stock could be worth nearly $100 billion in a decade. Discounted back by 10% per year, that equates to a near $40 billion market cap today, versus CGC’s current sub-$15 billion market cap.
Stocks That Could Double In 2019: Roku (ROKU)
The Fundamentals: Much like Facebook, Roku (NASDAQ:ROKU) was killed in 2018 due to a convergence of headwinds which investors extrapolated to mean slower growth and lower margins going forward. But, Roku’s growth isn’t slowing. This still a huge revenue growth company with a rapidly growing user base that is becoming more and more addicted to streaming content through Roku devices. Margins are also moving higher since revenue growth is coming from the high margin Platform segment. As sentiment normalizes to reality in 2019, highly volatile Roku stock could easily run back to all-time highs.
The Numbers: Roku stock trades at just 4.5x forward sales. At it’s peak, it traded at over 10x forward sales. A 10x multiple is hard to project for any stock. But other high margin, high growth, and still small software companies attacking big addressable markets usually trade at forward multiples of 7 or greater. Sales estimates for fiscal 2020 could easily march towards $1.3 billion in 2019. A 7x multiple on $1.3 billion implies a market cap of $9.1 billion. Roku currently has a market cap of under $4.5 billion.
Stocks That Could Double In 2019: Spotify (SPOT)
The Fundamentals: Once a high-flying favorite on Wall Street, Spotify (NYSE:SPOT) stock saw its bubble pop in 2018 due to concerns regarding rising competition and lack of a competitive moat to protect against that competition. Yet, despite those concerns, Spotify continued to report robust revenue, user and margin growth all year long. The reality is that the streaming music market has huge growth potential, and Spotify has huge brand and technology advantages over its peers. The market will realize this in 2019. Sentiment will adjust, and Spotify stock will bounce back.
The Numbers: Spotify stock trades around 3x forward sales. As mentioned earlier, that’s pretty low for a big-growth, high-margin software company attacking a big addressable market. Even Tencent Music (NYSE:TME) trades at over 5x forward sales. Thus, as sentiment normalizes in 2019, Spotify’s forward P/S multiple should move towards 5. Fiscal 2020 sales estimates should inch towards $10 billion. That combination implies a potential 2019 valuation target of $50 billion, versus under $25 billion today.
Stocks That Could Double In 2019: Skechers (SKX)
The Fundamentals: Although it never gets much love from Wall Street, Skechers (NYSE:SKX) is a stable growth company in the secular growth athletic apparel industry that has carved a global niche for itself selling mid-priced athletic footwear to consumers who value comfort over style. Because this market isn’t as “sexy” as the trend-focused, premium priced markets in which Nike (NYSE:NKE) and Adidas (OTCMKTS:ADDYY) spend most of their time, SKX stock trades at a huge discount to its peers. Yet, the company’s growth rates are just as impressive. Soon enough, sentiment and valuation will normalize, and that will lead to huge gains in SKX stock.
The Numbers: Skechers stock trades at just 13X forward earnings. All of its athletic apparel brand peers trade at basically 30 and up forward P/E multiples. SKX stock will never trade at such a high multiple. But, given steady double-digit revenue growth and solid gross margins, a 20x forward multiple makes sense for this stock. Fiscal 2020 EPS estimates sit at $2.30. A 20 multiple on $2.30 implies a 2019 price target of $46. SKX stock entered the year at $23.
Stocks That Could Double In 2019: AMD (AMD)
The Fundamentals: The best performer in the S&P 500 last year was AMD (NASDAQ:AMD). The chipmaker saw its stock soar 80% in 2018. At one point, it was up nearly 200%. The tailwinds that propelled AMD stock higher in 2018 (the hope of market share gains in both the CPU and GPU markets) have an opportunity to persist this year. If they do, and AMD’s numbers confirm that the company is rapidly growing its presence in the CPU and GPU markets, then euphoria will return to this stock, and investors will quickly bid it up.
The Numbers: AMD stock currently trades at over 30x forward earnings. That multiple isn’t sustainable. Eventually, it should come down to Nvidia (NASDAQ:NVDA) levels of around 20x forward earnings. The big target bulls are looking for is $2 in EPS. That won’t happen in 2019, or 2020. But, there’s a slim chance it happens in 2021. A 20 forward multiple on 2021 EPS of $2 implies a 2020 price target of $40. Discounted back by 10%, that equates to a 2019 price target of $36. AMD stock entered the year around $18.
Stocks That Could Double In 2019: Micron (MU)
The Fundamentals: Calendar 2018 was a forgettable year for shares of chipmaker Micron (NASDAQ:MU). MU stock fell from $40 to $30 as rising supply and falling demand in the company’s core DRAM and NAND markets weighed on revenue growth and gross margins. These concerns have left Micron stock trading at an anemic valuation, since buy-side expectations are for earnings to collapse for the foreseeable future. If this collapse doesn’t happen — and there’s a good a chance it won’t given that secular tailwinds in AI and data related markets could keep demand high — then MU stock is woefully undervalued, and could be due for a surge in 2019.
The Numbers: EPS estimates for two years ahead currently sit around $7. The problem with Micron is that those forward EPS estimates have been falling for a long time due to deteriorating supply-demand fundamentals. But, there’s reason to believe given relatively muted EPS movement in the new year, that those EPS estimates have bottomed. If so, MU stock in 2019 will be looking at a one year forward EPS estimate of $7. All it takes is a simple 10x forward multiple to get MU stock to $70 in 2019. Today, the stock sits at $30.
As of this writing, Luke Lango was long FB, CGC, ROKU, SPOT, SKX, NKE, and NVDA.
