Editor’s note: This story was previously published in April 2017. It has since been updated and republished.
After the big rebound earlier this year, it’s tough to see how much further some of the more well-covered stocks have to run. Look at cases like Nvidia (NASDAQ:NVDA) and other chip companies that have given back earnings but are on the rise again.
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.
Axcelis Technologies (ACLS)
Semiconductor companies are heating up again, with Advanced Micro Devices(NASDAQ:AMD) and Micron Technology (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 are down about 15% over the past year after a 60% run-up.
Axcelis features a decent balance sheet with about $178 million in cash versus $48 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.
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 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.
Analysts are improving their estimates on HudBay’s operational results. They’re looking for HBM stock eventually to see $10, 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.
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 traded at about $27. Today it’s something closer to $3.30 after starting the year at $1.05
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 300% gains so far in 2019.
There’s robust potential in this under-the-radar play.
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 vacationers who would rather find a McDonald’s (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 over the last year, the stock is having a major turnaround, nearly tripling between 2018 and 2019. That’s in large part because the company’s fundamentals are starting to turn around.
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.
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?
Oil prices are on the move, so shale gas won’t be too far behind, but to be honest this is an outside bet. After plummeting from a little over $1 per share to 35 cents or so, APEX has become the kind of penny stock you hope to see return to its former greatness.
Security Solutions (KTOS)
Whenever the discussion of defense stocks comes up, people almost always refer to the major players: Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), Raytheon (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 (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 company was up 28 % year over year posting 9 cents per share.
As a result KTOS has been bid higher, and the company’s adjusted figures are expected to improve even more going forward.
Choice Hotels (CHH)
When the market tanked late last year, Choice Hotels (NYSE:CHH) quietly began a push upward
Since early this year, 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 10%.
There’s no great secret here. The economy still is growing and Americans are 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.
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 $5 per share, and its gonorrhea drug solithromycin is the big hope.
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.
Last, we have Lonmin (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 metal.
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.