What are your criteria for finding hot stocks to buy that ought to stay hot?
I think it’s fair to say that when you’re walking down Momentum Avenue, the hot stocks that ought to jump out at you are those that have unusually high relative strength, exceptional earnings and/or sales growth, and participate in an industry or sector that’s generally attractive to most investors.
So, you might look for a stock with a relative strength of 71 or higher, earnings or revenue growth of at least 30%, or a stock that participates in an industry or sector with good future prospects.
Last year, InvestorPlace ran its annual 10 Best Stocks for 2020. The object was for 10 skilled investors to pick a stock that would perform over the course of a year.
The winner was Jason Moser, who picked Wayfair (NYSE:W). It gained 150% in the calendar year due to strong profits generated from all the work-from-home purchases during the pandemic.
- Stratasys (NASDAQ:SSYS)
- IAC/Interactive (NASDAQ:IAC)
- Amarin (NASDAQ:AMRN)
- Callaway Golf (NYSE:ELY)
- Viasat (NASDAQ:VSAT)
- DraftKings (NASDAQ:DKNG)
- ZoomInfo Technologies (NASDAQ:ZI)
- Camping World (NASDAQ:CWH)
- The Liberty Braves Group (NASDAQ:BATRA, NASDAQ:BATRK)
- Switch (NYSE:SWCH)
For this article, it’s my job to pick 1o winning hot stocks. Each of these is currently on a hot streak and expected to stay hot well into 2021.
Hot Stocks to Buy: Stratasys (SSYS)
3-Month Return (through Feb. 10): 257.6%
Stratasys’ claim to fame, other than to have a really annoying name, is that it manufactures 3D printers. SSYS stock gained some ground in January thanks to Stifel Nicolaus initiating coverage with a “buy” rating and a $40 price target.
“[W]e like the company’s simplified strategy, as it takes a step back to focus on maximizing its leading position in the polymers market” — as opposed to newer 3D-printer makers such as Desktop Metals, which are focusing on the construction of hardier all-metal objects from additive manufacturing,” Stifel wrote in a note to clients.
The company has suffered greatly in fiscal 2020. Through the first nine months of the year, Stratasys’ sales fell 20% to $378.4 million with a $454 million operating loss that included a $386 million goodwill impairment.
In December, it announced a $100 million acquisition of Origin, a 3D printing startup. The acquisition could add $200 million in annual revenue by 2025. The move confirms it is committed to the polymers market.
Stratasys might not be the perfect specimen for hot stocks, but diamonds in the rough often turn out to be unexpected gems. This is my sleeper pick.
3-Month Return: 84.6%
Next on this list of hot stocks is IAC. Barry Diller is the Chairman of IAC, a media company that he helped build over 28 years, starting with QVC in 1992. Before that, he ran both Paramount and Fox Broadcasting and Fox’s movie studio.
IAC consists of several internet businesses, including ANGI Homeservices, Vimeo, Dotdash, and several others. In its latest quarterly report, IAC grew revenue by 12% to $788.4 million with a 41% decline in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to $35.2 million.
Despite the decline in EBITDA, investors should keep in mind that Diller-run companies always have many moving parts. It had a $228 million after-tax unrealized gain during the quarter from its investment in MGM Resorts International (NYSE:MGM). IAC owns 59 million shares. Expect those to continue to rise in value once Covid-19 is a thing of the past.
However, the big item is that IAC is considering spinning off its ownership stake in Vimeo, whose revenues grew by 44% in Q3 2020. IAC has gained a reputation for spinning off assets once they get to a certain size. It’s done it in the past with Expedia (NASDAQ:EXPE), Lendingtree (NASDAQ:TREE), and several others.
Earnings are lumpy, but long-term, Barry Diller delivers.
3-Month Return: 98.3%
Amarin is a biopharmaceutical company. It develops and commercializes therapeutics used for improving cardiovascular health. Its best-known product is Vascepa, an omega-3 pill used to reduce triglyceride levels and reduce cardiovascular events in people with high triglyceride levels.
On Jan. 29, Amarin received a positive opinion for Vazkepa (Vascepa in Europe) from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency, the agency responsible for evaluating drugs for possible use in the European Union.
One estimate puts the value of the European market for Amarin to be worth between $5 to $10 a share. This doesn’t include the U.S. market, which generated $449 million in revenue in the first nine months of 2020, 56% higher than the same period a year earlier.
Trading around $8.60, assuming the business keeps chugging along, it could double over the remainder of 2021. That said, it comes with above-average risk due to possible generic competition in the future.
Callaway Golf (ELY)
3-Month Return: 69%
Covid-19 delivered a shot in the arm for the entire golf industry in 2020. People got out in large numbers to play the game on courses across the country. As a result, there was a 14% increase in rounds played in 2020, despite shutdowns in March and April. Virtually every key productivity indicator for the industry saw healthy gains.
This trend played right into the hands of Callaway, one of the leading providers of golf equipment in the U.S. and around the world. In early November, it announced record sales and earnings for Q3 2020.
It had sales of $476 million, 12% higher than a year earlier on the top line. On the bottom line, its adjusted net income was $58 million, 69% higher than Q3 2019.
“Our golf business is now experiencing unprecedented demand and our soft goods business is recovering significantly more quickly than we expected; our third quarter results reflect this momentum,” CEO Chip Brewer stated in its press release.
To top the year off, Callaway announced at the end of October that it was buying Topgolf Entertainment Group, the global leader in golfing entertainment, for $2 billion in an all-stock transaction that will see Callaway shareholders own 51.5% of the combined entity and Topgolf shareholders will own the rest.
Together, it will have $3.2 billion in annual revenue (2022) and $360 million in adjusted EBITDA ($360 million).
3-Month Return: 61.3%
I couldn’t remember when, or if, I’d written about the commercial satellite provider before. And then, I found an article from April 2016. Viasat was one of three stocks I recommended that I thought would continue to do well despite hitting all-time highs.
Anyway, Viasat stock’s been on the move in recent months, so I thought I’d figure out what’s making it go.
Viasat reported its Q3 2021 earnings on Feb. 4. It had earnings per share of 10 cents during the quarter, flat to Q3 2020, but 400% better than the two-cent analyst estimate. In the past two quarters, it’s had positive earnings surprises of 400% and 160%.
According to its Q3 2021 shareholders letter, the company’s backlog grew to $2.4 billion with a book-to-bill ratio of 1.1, indicating demand for its products is relatively strong.
Despite Covid-19, Viasat expects to generate record EBITDA in 2021. Through the first nine months, it was $383 million. In Q3 2021, EBITDA was 21% higher than last year. Expect it to be over $500 million for the year.
3-Month Return: 49.7%
I’ve written a fair bit about DraftKings in the past year, so I’m not going to say too much about the leader in online sports betting and fantasy sports.
I consider DKNG to be one of the best long-term investments available. That’s because the opportunity in the U.S. market alone should add billions to its market capitalization as it scales its business.
In November, I said it had the legs to go to $100. At the time, it was trading around $48. It’s up 34% since. I believe these gains are only the tip of the iceberg.
While the Canadian market can’t compare to America’s appetite for sports betting, DraftKings just announced the expansion of its partnership with the NFL into Canada.
Currently, the Canadian government is tabling legislation — Bill C-13 — that would allow its provinces and territories to permit sports betting, both online and in-person.
“The relationship we share with the NFL is important for DraftKings to provide customers a great experience,” Ezra Kucharz, chief business officer at DraftKings, said in a statement. “This expanded agreement gives us a unique opportunity in the Canadian market, and we look forward to working with the team at the NFL Canada as we continue to shape the modern fan experience.”
Canada won’t move the needle, but it will help pay the bills. I look forward to watching DraftKings’ growth in 2021.
ZoomInfo Technologies (ZI)
3-Month Return: 51%
ZoomInfo operates a cloud-based platform that provides sales and marketing teams with critical market intelligence on companies, organizations, and professionals they are targeting. Consider it the “Who’s Who” of the 21st century.
Carlyle Group (NASDAQ:CG) and other investors acquired Zoom in February 2019 for $760 million. The IPO saw Zoom sell 44.5 million shares at $21. As I write this, they’ve more than doubled in less than a year.
In 2020, ZoomInfo expected its revenues to be at least $465 million, its unlevered free cash flow to be at least $213 million, and adjusted operating income of at least $220 million.
With all three of these metrics growing at 20%+ per quarter, investors should expect its stock to keep pushing higher in 2021.
Camping World (CWH)
3-Month Return: 63.1%
One of the big trends in 2020, and even before Covid-19, was the great outdoors’ pursuit. Americans have been buying or renting recreational vehicles (RVs) in record numbers to experience the country up close and personal.
As the RV Industry Association reported in September 2020, last year saw more than 400,000 RV units shipped, with 2021 expected to deliver approximately 507,200 units, the best annual total on record.
“The RV industry has experienced strong consumer growth over the past 10 years, but the recent soar in consumer interest in RVing driven by the COVID-19 pandemic has led to a marked increase in RV shipments to meet the solid order activity at the retail level,” said RV Industry Association President Craig Kirby in September.
Naturally, Camping World, as America’s largest RV retailer, benefited greatly from this ongoing trend. In the latest quarter ended September 30, Camping World’s revenues increased 21% to $1.7 billion while its adjusted EBITDA jumped an astounding 258% to $217 million.
Although Camping World stock is up 156.2% over the past 52 weeks, it remains undervalued at 0.38 times sales, much less than its five-year average of 0.58%.
That’s why in December, I made it one of 10 hot stocks that were undervalued and ready to take off.
The Liberty Braves Group (BATRA, BATRK)
3-Month Return: 19.4%
As far as I know, the Atlanta Braves is the only Major League Baseball (MLB) team owned by a publicly-traded company.
There was talk that RedBall Acquisition Corp. (NYSE:RBAC) — backed by Oakland A’s executive Billy Beane — was looking to buy 20-25% of Fenway Sports Group, the owners of the Boston Red Sox’s and other sports-related assets. That deal fell through because RedBall failed to get the necessary financing.
That leaves sporting investors with just one choice: The Liberty Braves Group. It is one of the many public companies spawned by John Malone’s Liberty Media. In addition to BATRA, investors can buy Liberty Media Formula One (NASDAQ:FWONA, NASDAQ:FWONK) and Liberty Sirius XM (NASDAQ:LSXMA, NASDAQ:LSXMK).
When you buy into BATRA, you’re buying into what’s called a tracking stock, which tracks the performance of the Braves Group assets without actually owning any assets. Liberty Media holds those. Investors can’t buy into Liberty Media directly.
In February 2020, before the pandemic got rolling, Liberty Braves stock was trading around $30. In March, it fell to a 52-week low of $13.59 as MLB shut down due to Covid-19.
In 2019, it had $476 million in revenue and $54 million in operating profit before depreciation and amortization—the past year’s expected to be worse on both the top and bottom line.
However, valued at $1.5 billion, it’s undervalued relative to the $2.4 billion Steve Cohen paid for the New York Mets in September 2020.
There’s still money to be made with hot stocks like this post-Covid.
3-Month Return: 29.1%
Last on this list of hot stocks is Switch. Switch has been a public company for 39 months. Its IPO was in October 2017 at $17 a share, raising net proceeds of approximately $498 million.
While I’ve never claimed to be a technology whiz, you would think that a company specializing in exascale data centers and other technology solutions would have delivered better stock performance over the past 39 months.
In May 2018, my InvestorPlace colleague, Josh Enomoto, put Switch on a list of three up-and-coming hot stocks that could be huge. While Josh’s pick is up 50% over 32 months, the stock fell to as low as $6.50 by the end of 2018 before recovering. That volatility he mentioned sure came into play.
So, where to now? Into the $20s, of course.
On Jan. 13, Jefferies analyst Jonathan Petersen upgraded Switch from hold to buy while also raising its target price by 22% to $22.
“With SWCH open in four regions and past the initial investment period, the company earnings growth has inflected with an acceleration of leasing volume along with margin expansion driving our expectation of sector-leading AFFO/sh growth through 2024,” the analyst wrote in a note.
With revenues and profits at record levels, now’s the time to get behind this data center industry leader.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.