Sleeper stocks. If you’re thinking about them just now, you might be soon led to believe that you’re smelly stuff out of luck. Despite some disappointing economic figures and the monstrosity of our fiscal challenges, the major indices continue to soar. As a result, you might be tempted to give in and join the fun.
However, that might not be the best move, especially if you’re banking heavily on the flavors of the week. For instance, we’ve seen what so-called meme stocks can do, driving up retail investor sentiment only to crash sharply as those “diamond” hands start to slip. A significant reason for this volatility is that many market newcomers levered up to buy these hot trades.
But don’t just think that it’s merely folks on Reddit who are encouraging questionable financial behaviors. Rather, the entire market has gone mad in a sense. According to data from FINRA, traders are levered up more than they’ve ever been on record, to the tune of nearly $799 billion in margin accounts. That’s why I think sleeper stocks to buy represent a far better idea than chasing the fads.
What happens when these publicly traded securities correct – because they inevitably do? This kind of leverage – both on official trading accounts and various personal loans – makes me nervous. It’s just asking for a catastrophe. At least with sleeper stocks, you can theoretically mitigate outrageous volatility.
Also, with leverage comes exceptional pressure. I’m not surprised that many of the diamond hands blinked. When bloops and beeps on the computer screen can spell the difference between living easy and living on the run, usually, rationality kicks in. Avoid that drama with these sleeper stocks.
- Skechers USA (NYSE:SKX)
- Kelly Services (NASDAQ:KELYA)
- Adecco Group (OTCMKTS:AHEXY)
- Switch (NYSE:SWCH)
- Limelight Networks (NASDAQ:LLNW)
- Opko (NASDAQ:OPK)
- Amarin (NASDAQ:AMRN)
- Eat Beyond (OTCMKTS:EATBF)
On a final cautionary note before we dive in, I should warn you that going with under-the-radar names won’t exempt you from a market collapse, if that were to occur. However, if you’re going to get in on the markets today, you should consider at least some exposure to these sleeper stocks to even out your portfolio’s risk profile.
Skechers USA (SKX)
One year can make a huge difference as stakeholders of Skechers USA can attest. At this time in 2020, SKX stock was on the verge of collapse as the novel coronavirus infiltrated our shores and began devastating our economy. By around mid-March, shares had roughly endured a half-off haircut. Frankly, no one wanted to have anything to do with the discretionary consumer market at that point.
But like other investments, SKX stock gradually made its way higher. In early June, shares had closed up near $37, rewarding daring speculators who jumped aboard during the March doldrums. But unlike the competition such as Nike (NYSE:NKE), Skechers hasn’t looked particularly exciting. On a year-to-date basis, SKX has gained 1.8% — not bad, but not great in this environment dominated by so-called meme stocks.
But that only means that Skechers qualifies as one of the top sleeper stocks. As you know, Covid-19 succeeded in replacing our suit-and-tire professional wardrobe with sweatpants and sneakers. With the Wall Street Journal reporting that workers are still reluctant to return to the office, the pandemic can potentially offer more upside for SKX.
Kelly Services (KELYA)
Prior to the pandemic, the burgeoning role of independent contractors – colloquially known as the ‘gig economy’ – was already transforming the concept of work. Thanks to technologies involving connectivity, it was now possible to work from anywhere with an internet connection. Then, the pandemic struck and suddenly, investments like Kelly Services and KELYA stock received a fundamental boost.
However, this boost didn’t really translate to much excitement for Kelly Services. That’s because the hot employment-related investments are focused exclusively on the gig economy, leaving KELYA stock out in the cold. But that could change in 2021 as society attempts to return to at least somewhat normal, making KELYA one of the potentially lucrative sleeper stocks to buy.
In particular, speculators should consider Kelly Education, which provides workforce solutions for academic institutions. These range from adjunct professors to custodial talent, an important function as students invariably return to college campuses over the next few years.
Adecco Group (AHEXY)
Another example of workforce-solutions-related sleeper stocks is Adecco Group. Naturally, companies that specifically specialize in gig economy placements and projection connections, such as Upwork (NASDAQ:UPWK), have dominated the broader employment and professional services arena.
Here’s the thing – UPWK is up nearly 480.5% over the trailing year. You can call Upwork many things, but an example of sleeper stocks it is not.
On the other hand, AHEXY stock has gained less than 8% over the same time frame. Now, just because something underperforms doesn’t mean that it’s a great idea, I get that. At the same time, I believe the concept of gig work is overplayed right now.
This is going to be incredibly controversial, but most Americans likely suffer from delusions of grandeur. Psychological studies suggest that Americans lack objective self-awareness – they are quick to criticize but become intolerably sullen when receiving criticism.
Anyways, it’s much easier to game the employment system rather than the gig economy, where meritocracy (i.e., getting the job done) reigns supreme. Therefore, I like AHEXY stock as a sleeper play.
These days, it’s hard to find sleeper stocks within the technology sector. While tech has always been the driving force of the 21st century economy, we didn’t really think too much about it. Or a better way to phrase it is that we took tech-based platforms for granted. Of course, the coronavirus pandemic changed our tune in a hurry.
With millions of people working remotely, the push for bigger, better and faster has skyrocketed several tech plays. And Switch is no exception – at least from a predefined framework. For instance, between March 12 and May 29 of last year, SWCH stock gained over 70%. However, since late May, shares have stagnated into a descending trend channel until earlier this year when sentiment reversed.
Nevertheless, I’d say that SWCH stock hasn’t reversed by all that much, meaning there’s still upside remaining. With the underlying company specializing in exascale data centers – to use very basic language, these data centers can process a junk load of data – SWCH has incredible relevance to the new normal, whichever way it goes.
Limelight Networks (LLNW)
As companies like Fastly (NYSE:FSLY) demonstrated, content delivery networks – basically, platforms that reduce internet latency and improve overall performance by bringing computing processes closer to the source of data – are huge. This was the case anyways with our rapid-fire digitalized economy. But with the Covid-19 crisis, CDN demand has accelerated.
But there’s one problem for contrarian investors – there aren’t too many sleeper stocks in this arena. For instance, over the trailing year, FSLY has gained over 310%. That’s why I’m excited about Limelight Networks. As a CDN player, the underlying business is relevant. Plus, you’re not going to worry about holding the bag on an excessively popular trade.
Over the same period, LLNW stock is down nearly 37%.
Of course, this creates its own issues. Most of this underperformance is tied to its third quarter of 2020 earnings report. Though Limelight largely met its own guidance, analysts considered the results pedestrian. In an environment where everything is going gangbusters, LLNW stock was disappointing.
However, the fundamental reality is that demand is strong. For instance, people will still be streaming significantly for months, if not years to come. And work-from-home initiatives may not go away immediately, bolstering the narrative for CDNs.
As a diagnostics and laboratory analytics specialist, Opko had profound fundamental relevance during the early days of the coronavirus. With people running amok and not knowing the severity of the crisis – especially when we learned about asymptomatic conditions – diagnosing the SARS-CoV-2 virus became an essential battlefront in the war against the pandemic.
Sure enough, OPK stock went ballistic from early April to the second half of July 2020.
But with the encouraging rollout of Covid-19 vaccines, along with the sharp decline in daily infections, buying shares of Opko doesn’t seem to make much sense. However because of this dynamic, OPK could be one of the more intriguing sleeper stocks to buy this year.
Primarily, the coronavirus could become endemic, meaning that it could keep recurring in the years ahead. To be fair, this doesn’t necessarily mean that the virus will be just as deadly (or deadlier) as the first round. However, it’s imperative for government agencies to control the situation. Therefore, OPK stock has a surprisingly long lifeline.
Perhaps it’s because of the general principle of the Dunning-Kruger effect, but Americans are generally optimistic. Therefore, if you’re bearish on a company – even if you have good reason to be – you’re public enemy number one.
For instance, I was skeptical about Under Armour (NYSE:UA, NYSE:UAA) before its big tumble. Also years ago, I had questions about Nio (NYSE:NIO). Not sure if I see the correlation but that led some folks to question my orientation.
In early January 2020, I didn’t think Amarin will do all that well. In retrospect, I was right, although the coronavirus had more of a say on AMRN stock than anything. At the time, addressing chronic conditions wasn’t atop the healthcare radar.
Naturally, this also led to severe backlash. I don’t think I’ve ever had more F-bombs dropped on me regarding any other stock I discussed!
But as society gradually returns to normal, I’m going to change my mind on AMRN stock. While I think it’s still risky, several Covid-embattled pharmaceutical plays are now sleeper stocks. Watch this space.
Eat Beyond (EATBF)
One of the most distressing circumstances that occurred during the Covid-19 lockdowns last year was the disruption to the food supply chain. Not only did that cause panic at the grocery store, it posed a serious moral question. Farmers had to put down their animals which were designated as animal protein because at the time, no demand existed for them.
Yes, the livestock was going to die anyways, I get that. But it also seems very disturbing that the animals couldn’t just be let free. Instead, no matter what, these living beings were destined for death.
Surely, while this is a distressing thought, it’s not going to change the eating habits of everyone wholesale. However, the pandemic did raise the morality question enough to where companies specializing in plant-based meats like Eat Beyond are now compelling sleeper stocks to buy.
As well, EATBF stock represents great comparative value. With sector leader Beyond Meat (NASDAQ:BYND) already a well-known commodity, I’m not sure how much BYND will grow. On the other hand, Eat Beyond shares are priced below $3 at time of writing.
Finally, millennials and Generation Z have embraced alternative meat products. More than likely, then, EATBF stock will do very well in the longer term.
On the date of publication, Josh Enomoto held a long position in EATBF.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.