The markets have gotten off to a roaring start in the new year. Of course, many of the hot stocks have been concentrated in the tech sector. For the most part, there has been an acceleration of digital transformation because of the novel coronavirus pandemic. And it looks like this trend is going to be lasting.
However, some of these hot stocks are quite frothy right now. The valuations have reached levels that will make it difficult for the companies to beat expectations.
Because of this, it might be a good idea to focus on those under-the-radar stocks that still offer solid upside potential.
So which ones look interesting? Well, let’s take a look at seven:
- eBay (NASDAQ:EBAY)
- ZoomInfo Technologies (NASDAQ:ZI)
- Sumo Logic (NASDAQ:SUMO)
- Dynatrace (NYSE:DT)
- Asana (NYSE:ASAN)
- BlackBerry (NYSE:BB)
- Aspen Technology (NASDAQ:AZPN)
Hot Stocks: eBay (EBAY)
Until recently, eBay stock has been a laggard. But CEO Jamie Iannone has been making some major changes to the company and they are making an impact.
Just look at the recent quarter. Revenues jumped by 28% to $2.9 billion, which beat the Street forecast of $2.7 billion. The gross merchandise volume grew by 21% to $26.6 billion and the number of active buyers rose by 7% to 185 million.
Part of the strategy at eBay has been to streamline the operations. To this end, there has been the spin-off of the classified businesses. There also may be a sale of the segment in South Korea.
Moreover, the company has been ramping its advertising revenues. For the year, they came to about $1 billion. This has become a nice growth area for the business. Although, the development of the payments division may have the biggest driver.
Since the start of the year, EBAY stock has increased by 24% to $63. Yet the valuation remains reasonable, with the forward price-to-earnings multiple at 16X.
ZoomInfo Technologies seems to embody the idea that “data is the new oil.”
And it is certainly true. Data is a key reason companies like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) have been so successful. But of course, there are various mid-size companies that have rich troves of data as well, and ZoomInfo is a prime example.
The company, which has been around for over two decades, has a dataset on 132 million businesses and individuals. The focus is primarily on helping sales people and marketers find new leads.
As should be no surprise, AI has been essential. This has not only involved building a strong team of data scientists but making various acquisitions. Some of the deals include the purchases of Clickagy (a provider of AI-powered buyer intent data) and EverString (which has a set of AI tools for SMBs).
In the most recent quarter, revenues increased by 57% to $123.4 million and cash flows were $53 million. The company has about 220,000 paid users.
Meanwhile, ZI stock has rallied 37% since early December. And while the valuation is not cheap, the company is still a dominant player in a growing market that has few competitors.
Sumo Logic is a pioneer in continuous intelligence. This involves ingesting huge amounts of data and making decisions in real-time. For the most part, this has proved quite useful for security applications. But over the years, Sumo Logic has applied the technology to various other categories like IoT (Internet-of-Things).
Growth has been robust. In the latest quarter, revenues increased by 28% to $51.9 million. There have also been nice improvements in the gross margins, which have gone to about 77%.
SUMO stock has not really had the standout returns of other hot stocks in the enterprise software space. But it is important to keep in mind that the market potential is enormous. Based on research from IDC, it’s about $55.1 billion. In other words, there is much runway for growth for Sumo Logic.
Dynatrace is not a young company. It was founded in 2005 in Austria. The company would then sell to Compuware and was spun-off in 2019.
Over the years, Dynatrace has built a comprehensive platform that helps monitor and optimize application performance and development. A key to this has been the leveraging of AI.
As software has become more strategic for many companies, Dynatrace has definitely benefited. In the latest quarter, the ARR (Annual Recurring Revenue) increased by 35% to $722 million and the operating income was $53.4 million.
From the start of the year, DT stock has gone from $26 to $54. But the gains should continue, especially since there will be a growing need for software management services.
This is why Facebook built its own collaboration system, which was essential. But when Moskovitz left, he took this idea and created his own system called Asana.
But it was more than just about whiz-bang technology. He strove to give Asana an experience much like a top consumer app.
The strategy was spot-on, as the growth has been strong. In the latest quarter, revenues shot up by 55% on a year-over-year. True, a big catalyst has been the Covid-19 pandemic as there has been a scramble for managing at-home employees. There are currently more than 89,000 paying customers.
For ASAN stock, it has had a nice move for the year so far, up about 34%. But the momentum is likely to continue. After all, even as things normalize with the virus, it still seems like a good bet that remote work will be pervasive.
BlackBerry has been one of the notable stocks that has been caught up in the Reddit frenzy. Since the start of the new year, BB stock has gone from $6, to a level not seen since $28. Although, the shares have since settled down to $13.
Yet this looks like a good entry point. After all, the company has spent the past few years in a major restructuring. And now it looks like the efforts are starting to payoff.
Consider that the company has built a strong platform for security software for IoT and the ARR has gotten to around $475 million.
To push innovation, BlackBerry has focused on AI to enable better security. This has been implemented in the CyberSuite, which has shown encouraging progress.
But the company’s efforts with connected cars may be the biggest factor for BB stock. For example, the QNX platform has snagged an impressive 19 wins of the top 25 electronic vehicle operators, or about 61% of the market. While this is a massive market opportunity, the technology also has the potential for other categories like turbines, rail traffic and next-generation satellites.
Aspen Technology (AZPN)
Aspen Technology is a veteran of the tech world. Note that the origins of the company go back over 35 years. Aspen got its start from the leveraging of the innovation from MIT, such as to use software for optimization of complex manufacturing environments.
But with the emergence of AI and machine learning, the business has been picking up some nice momentum. It certainly helps that Aspen has deep experience with many large clients. For example, a recent customer renewed a contract for $75 million.
The Covid-19 pandemic has been a factor as well. That is, customers have had to find ways to deal with the disruptions of supply chains.
Aspen Technology also has a highly profitable business. In the most recent quarter, the cash flows from operations came to $37.8 million.
Regarding AZPN stock, it is trading at an attractive valuation, at least compared to the many other red hot stocks in the enterprise software space. The forward price-to-earnings multiple is 29X.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.