Investors looking for a quick gain in the stock market need to act quickly or risk missing out. There is a certain panic — everyone wants to buy hot stocks while they are on the way up. But this desire is not without risks. How much risk, you ask? It all comes down to the price you pay and the upside left.
Try buying a stock when everyone else already knows about it, and watching it plunge. That is a terrible feeling that you will strive to avoid.
So, how can you chase red-hot names safely?
If company revenue keeps growing at better-than-expected rates, the stock prices will keep rising. Furthermore, investors should pick companies that have a healthy amount of cash on hand and strong liquidity. That way, management will not need to sell shares to take advantage of the bullish sentiment.
These are seven companies that embody all that. Plus, they dominate their respective sectors and are poised to continue taking market share. My seven hot stocks to buy before it is too late are:
- Roku (NASDAQ:ROKU)
- DocuSign (NASDAQ:DOCU)
- Teladoc Health (NYSE:TDOC)
- Estee Lauder (NYSE:EL)
- AMC Entertainment (NYSE:AMC)
- AbbVie (NYSE:ABBV)
- Cardlytics (NASDAQ:CDLX)
Hot Stocks: Roku (ROKU)
Roku operates a television streaming platform in the United States. The more televisions sold, the more viewers added to its ecosystem. In the second quarter, the company posted an “exceptional” increase in active accounts. And streaming hours rose 65% to 14.6 billion.
Roku’s average revenue per user rose 18% year-over-year to $24.92. And while its adjusted EBITDA sunk to a loss of $3.4 million from a positive $11.1 million last year, there is a lot of potential ahead for the company.
How? Advertising revenue is a positive catalyst. As businesses rebound and the economy opens up again, advertisers will allocate more spending to the Roku platform.
Roku is benefitting from growing TV use, as consumers stay at home more often. Individuals will continue to spend more time in front of TV and less on mobile devices. This trend suggests that Roku revenues, especially ARPU, will continue growing. And as consumers upgrade their TVs, they will lift figures for active accounts and streaming hours.
Based on a 10-year discounted cash flow EBITDA exit model, Roku stock is worth over $160 a share.
After already more than doubling in 2020, DocuSign has further upside ahead. The need to fulfill contracts electronically will sustain this software company’s billing and revenue growth.
In the first quarter, DocuSign posted billings increasing 59% YOY to $342 million. Revenue rose 39% YOY to $297 million, largely driven by gains in enterprise and commercial customers.
And these gains will keep delivering. Enterprise and commercial customers should create steady revenue growth, in good times and bad.
But what happens if you missed out on this top work-from-home play? Unfortunately you would be paying a premium at current levels. However, the latest acquisition suggests DocuSign can sustain its growth rate. It just paid $38 million in an all-stock transaction for Liveoak Technologies. The deal will enhance e-signature features and add identify verification and collaboration tools to the company’s WFH solutions.
Hot Stocks: Teladoc Health (TDOC)
Just as all acquisitions of this size add uncertainty, markets are adding a discount to the Teladoc deal to price in potential risks. Yet Teladoc is removing a competitor from the market, setting up a profit-margin increase after the merger.
Teladoc CEO Jason Gorevic said that Livongo “has demonstrated success improving the lives of people living with chronic conditions.” Together, the combined firm will lead to increased virtual care and grow its data-driven platform.
There is still more to like. In the second quarter, Teladoc posted revenue growth of 85%, to $241 million. It also raised its third-quarter guidance, full-year expectation and posted a preliminary 2021 revenue growth forecast. Next year, the company expects its revenue will grow between 30% to 40%.
Estee Lauder (EL)
Estee Lauder did not post the greatest third-quarter results. Net sales fell 11% to $3.35 billion. CEO Fabrizio Freda explained that the spread of the novel coronavirus beyond Asia hurt results. Lower traffic at its retail locations, which is a result of temporarily closed stores, led to a small loss in the quarter. But investors looking ahead should recognize the rebound potential as the global retail market recovers.
In its Q3 conference call, Estee said it expected double-digit growth in Mainland China in Q4. It already saw store reopenings in South Korea having a positive impact on results. Plus, the reopenings in Europe should lead to a strong revenue beat in the next quarter and for the rest of the year.
Increasing travel is generally a positive catalyst for EL stock. Freda said, “there is the possibility to recover at least part of the travel retail sales in the country of origins.”
This opinion suggests that as airline traffic grows, this firm should see a rebound, too.
Hot Stocks: AMC Entertainment (AMC)
Though it is the smallest of the picks here by market capitalization, AMC Entertainment is an outlier with its potential for outsized returns. The movie theater company posted second-quarter revenue falling by over 90%. But because it renegotiated its debt and cut operating costs, AMC stock is positioned for a rebound.
AMC restructured around $2.6 billion of its debt. It renegotiated its leases to dramatically cut operating and capital expenditures. Last month, it resumed operations internationally in more than 130 theaters. As it reopens theaters in the United States, the stock should continue to climb.
There is more to like besides the reopening catalysts. On Aug. 7, a court decision that will allow movie studios to own theaters was an unexpected positive. As the battle for audience intensifies, AMC is a good takeover target. Management already cut costs as low as it could. It also prepared the locations to minimize the risk of virus spread. The company said on its conference call that it developed AMC Safe and Clean protocols. By consulting with Clorox (NYSE:CLX) and Harvard’s T.H. Chan School of Public Health, moviegoers may enjoy a safe experience.
Analysts are highly bearish on AMC stock with a $4 price target. Contrarian investors betting against the rating would get a big reward if proven correct.
After acquiring Allergan, AbbVie posted second-quarter revenue rising 26.3% to $10.43 billion. It earned $2.34 a share in the period. The company issued EPS guidance for the full year of $10.34-$10.45.
A slowdown in the aesthetics business due to Covid-19 hurt results. But by the end of June, the total business recovered to more than 90% of pre-pandemic levels. For example, Botox therapy will recover as hospitals and clinics reopen.
Beyond boosting earnings per share, the Allergan acquisition will help AbbVie secure its pipeline over the next few years.
Importantly, there are several new product launches that will drive growth. AbbVie has a portfolio of migraine therapies. So far, the launch of Ubrelvy, an oral drug for acute migraines, is off to a strong start. The drug enjoys 70% commercial access. Consumer promotions will further support its launch.
Rinvoq, a treatment for atopic dermatitis for which Phase 3 trials are underway, is another positive driver. When AbbVie posts study results later this year, investors may forecast billions in revenue from this drug. By comparison, Regeneron’s (NASDAQ:REGN) Dupixent already generates billions annually in revenue.
Hot Stocks: Cardlytics (CDLX)
Cardlytics offers a native advertising platform that exists within the digital channels of banks. In the second quarter, the company launched its My Wells Fargo Deals for Wells Fargo (NYSE:WFC) customers.
This deal highlights what works for Cardlytics. What does that mean? Well, it owes its growth potential to its scaled solution. With purchase intelligence, in which it markets to the most valuable customers based on what they are spending, advertisers get accountable reports from Cardlytics.
And FI monthly active users, a specific group of customers targeted through Cardlytics’ partners, topped $157.2 million in the second quarter.
Also in the second quarter, Cardlytics posted a drop in billings and revenue. But investors did not sell CDLX stock after the report because they are betting that the company wins more of the advertisers’ budgets moving forward. Plus, with the U.S. slowly returning to normal, beat-up sectors will rebound. On its conference call, the company forecast a sequential improvement in the third and fourth quarter.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. As of this writing, Chris Lau owns shares of AMC Entertainment (AMC).