The past year saw many companies join the list of up-and-coming stocks. Their products and services are seeing increased demand, and investors are typically excited to invest in them. When long-term investors buy an up-and-coming stock, especially when the price is off recent highs, they are likely to be rewarded significantly. Therefore, let’s discuss seven hot stocks to buy that deserve to be on your watch list in the rest of the year.
Overall, looking beyond the popular names in broader markets is not always easy. One can easily get caught up in the headlines. But the days of the novel coronavirus pandemic showed us that innovation exists even under seemingly difficult conditions. Up-and-coming businesses tend to get momentum behind them as they see their sales grow in expanding markets. Growing revenues and earnings typically translate into share price growth, too.
Professor Aswath Damodaran of the Stern School of Business, New York University, highlights, “There are four pieces that make up the intrinsic valuation puzzle – the cash flows from existing assets, the expected growth from both new investments and improved efficiency on existing assets, the discount rates that emerge from our assessments of risk in both the business and its equity, and the assessment of when the firm will become a stable growth firm (allowing us to estimate terminal value).”
Therefore, potential investors need to do due diligence before committing capital into businesses that are likely to become stable growth names. And with that in mind, here are seven hot stocks to buy in the rest of the year:
- Chewy (NYSE:CHWY)
- Meritage Homes (NYSE:MTH)
- Nautilus (NYSE:NLS)
- Nokia (NYSE:NOK)
- Redfin (NASDAQ:RDFN)
- Tennant (NYSE:TNC)
- Weis Markets (NYSE:WMK)
Now, let’s dive in and take a closer look at each one.
Hot Stocks: Chewy (CHWY)
52-Week Range: $36.65 – $120
Pet owners are likely to have heard of and possibly used Chewy’s e-commerce platform that was launched in 2011. The group sells products, supplies as well as medications for our much-loved pets. The online store has over 2,500 brands and 45,000 items, including Chewy’s own brands. Its current market capitalization (cap) stands at $29.5 billion.
In late March, Chewy announced strong Q4 and full-year earnings. Sales reached $7.15 billion in FY2020, up 47% year-over-year (YOY). 2020 saw the company add 5.7 million new customers, or “pet parents.” Now it has close to 20 million shoppers. Moreover, quarterly net sales were $2.04 billion, an increase of 51% YOY. Investors welcomed an adjusted profit for the first time.
CEO Sumit Singh cited, “2020 was an incredibly challenging and unpredictable year for all of us. During this time, Chewy performed exceptionally well and made significant strategic and operational progress… Years of preparation and focus have positioned us as the Internet’s preeminent neighborhood pet store and a leading pure-play e-commerce company in the pet space.”
The stock price is up about 82% over the last year, but down 20.3% year-to-date (YTD). The stock’s price-to-sales (P/S) ratio is 4.1. Pet care is booming and pet parents are typically loyal customers. Therefore, Chewy’s growth trajectory is likely to continue in the quarters ahead. Interested investors could regard the recent decline in price as a good opportunity to buy the shares.
Meritage Homes (MTH)
52-Week Range: $50.18 – $120.19
Scottsdale, Arizona-based Meritage Homes is a residential construction company that primarily builds single-family and active adult housing communities stateside. The company ended 2020 with 11,834 closed homes and with $4.5 billion in home closing revenue. Its market cap is $4.4 billion.
Meritage Homes released Q1 earnings on April 28. Its closings of 2,890 homes this quarter were 25% higher than the first quarter of 2020. Home closing revenue came at $1.08 billion. A year ago, it had been $890,417 million. Net earnings of $131,843 million were up from $71,152 million in Q1 2019. Diluted earnings per share (EPS) stands at $3.44.
Executive Steven J. Hilton remarked, “The current environment, coupled with our strategy centered on affordable entry-level and first move-up homes, enabled Meritage Homes to produce the highest first quarter of orders and closings in the company’s history as well as the highest quarterly home closing gross margin since 2006.”
YTD, the stock is up 36%. MTH shares are trading at 8.71x of consensus forward price-earnings (P/E). The stock’s P/S ratio stands at 0.95. Given how far the stock has advanced in the past 12 months, short-term profit taking is likely. Buy-and-hold investors would find better value around around $105. The housing market is hot and this homebuilding stock is likely to deliver further shareholder value.
Hot Stocks: Nautilus (NLS)
52-Week Range: $5.15– $31.38
Vancouver, Washington-based Nautilus designs home-fitness equipment that sells under the Nautilus, Bowflex and Schwinn brands. The company operates in two segments: direct and retail. It also derives a portion of revenue from the licensing of its brands and intellectual property.
The company went public in 1999. However, the past decade saw growth stall. Nonetheless, Nautilus stock was a beneficiary of the stay-at-home trend in the past year as the stock increased by 218%.
According to the most recent quarterly earnings, net sales of $206.1 million grew by 120% YOY. Net profit and EPS were $30.4 million and 93 cents, respectively.
Jim Barr, Chief Executive Officer of the company commented “Our team delivered its second consecutive quarter of record-breaking results and posted the highest quarterly revenue in our Company’s 35-year history. Net revenue of $206 million exceeded the high end of guidance, growing 120% versus last year, or 143% excluding the divested Octane business.”
Moreover, since the start of the year, NLS stock is down 4.7%. Forward P/E and P/S ratios are 11.27 and 0.98. The company has been announcing changes to senior management in its efforts to achieve sustained growth. The market cap stands at $517 million. Potential investors could regard the decline in price as an opportunity to go long the shares.
52-Week Range: $3.21 – $9.79
Finland-based Nokia is a leading vendor in the telecommunications equipment industry. Its focus is the network and Internet protocol (IP) infrastructure and software market. Business segments include Ultra Broadband Networks, IP Networks and Applications, and Nokia Technologies. The current market cap is just under $29 billion.
Nokia reported strong first-quarter results on April 21. On a constant currency basis, net sales increased 9% from the prior year quarter to 5.08 billion euros. This growth was partially fueled by 5G-related gains in network infrastructure and mobile networks businesses. Adjusted net profit soared more than 11-fold to 431 million euros. Nokia generated 1.2 billion euros in free cash flow.
CEO Pekka Lundmark cited, “…I was particularly pleased by strong sales growth across our Network Infrastructure business group driven by increasing demand for next generation connectivity; good progress in Mobile Networks in securing full portfolio competitiveness; continued double-digit sales growth with our Enterprise customers; double-digit sales growth in North America; and good net sales development for Nokia Technologies.”
So far in the year, the shares are up nearly 26%. NOK stock’s forward P/E and P/S ratios are 16.61 and 1.05, respectively. Analysts expect the high-margin 5G business to provide tailwinds for growth. However, given the recent run-up in price, retail investors could consider waiting for a decline toward $4.70 to enter the shares of this hot stocks member.
Hot Stocks: Redfin (RDFN)
52-Week Range: $22.05 – $98.44
Seattle, Washington-headquartered Redfin is a technology-powered real estate group. In addition to brokerage services, it is an instant home-buyer (iBuyer), lender, title insurer, and renovations company. Redfin serves customer in the U.S. and Canada. The past year has seen a booming housing market. Decreasing inventory levels, lower mortgage rates, and increase in home sales have been the main catalysts.
The company announced Q1 results on May 5. Revenue increased 40% YOY to $268 million. Net loss was $36 million, compared to net loss of $60 million in the first quarter of 2020. Net loss per share attributable to common stock, diluted, was 37 cents. A year ago, the number had been a loss of 64 cents. The company ended the year with $1.24 billion in cash.
CEO Glenn Kelman commented, “From the fourth quarter of 2020 to the first quarter of 2021, our year-over-year market-share gains more than doubled, and our year-over-year gross-margin gains also accelerated. We tripled the rate at which we’re scheduling home tours instantly and automatically, giving our customers a competitive advantage when homes are selling faster than ever. Our RedfinNow business of buying and selling homes returned to growth and earned its first significant gross profits, and our mortgage business continued to grow at a year-over-year rate of about 200%.”
For Q2 2021, management expect revenue to be between $446 million and $457 million, representing 109%-114% YOY increase. Overall, RFIN stock is down 21.7% in 2021, having given up some of the significant gains of the past year. The shares are trading at 5.98x of sales and the market cap is $5.9 billion.
52-Week Range: $48.80 – $87.40
Minnesota-based Tennant is a leading name in the floor maintenance and cleaning equipment space. In addition to cleaning products, it offers offers cleaning technologies, aftermarket parts, equipment maintenance, repair service, specialty surface and coatings. Its customers include retailers, warehouse, public and hospitality venues, schools, hospitals, parking lots and others.
On May 4, Tennant announced its Q1 2021 figures. Net sales grew by 4.4% YOY and hit $263.3 million. Net income was $25.7 million, or $1.37 diluted per share. A year ago, the comparable metrics had been $5.2 million or 28 cents per diluted share. March-end cash and equivalents stood at $175.2 million.
CEO Dave Huml stated, “We were very pleased with our performance in the second half of 2020 and the momentum we experienced coming into this year… We have taken this into account in raising our full-year guidance.” Management now expects net sales of $1.09-$1.11 billion, reflecting organic sales growth of 9%-11%.
In the past year, TNC stock returned over 48% and hit a record high. The current price supports a dividend yield of 1.1% and means a market cap of $1.59 billion. The shares are trading at 22.62x of consensus forward P/E. The stock’s P/S ratio stands at 1.57. As the economy continues to open up, many of Tennant’s customers are likely to put increased orders with the group. Potential investors cold consider buying the dips in this member of the hot stocks out there.
Hot Stocks: Weis Markets (WMK)
52-Week Range: $44.35– $59.70
Founded in 1912, food retailer Weis Markets operates around 200 stores in the Mid-Atlantic region. The company’s stores range in size from 8,000 to 71,000 square feet, with an average size of approximately 49,000 square feet. It offers store goods, fresh food, pharmaceutical services as well as fuel.
On May 6, the retailer released Q1 earnings. Sales increased 2.1% YOY to $1 billion during the thirteen-week period ended March 27, 2021, while first-quarter comparable store sales went up by 1.4%. Net income decreased 9.1% to $24.3 million, compared to $26.7 million in 2020. EPS totaled 90 cents, compared to 99 cents per share for the same period a year ago.
CEO Jonathan H. Weis commented, “ur first quarter 2021 results remained significantly elevated in absolute terms and were in line with expectations with sales up 14.8 percent and net income up 69.6 percent compared to the pre-pandemic levels in first quarter 2019, which is a more appropriate baseline for comparison.”
YTD, WMK shares are up 11%, and the current price supports a dividend yield of 2.3%. The stock’s P/S ratio is 0.35. Going forward revenue could fluctuate depending on market cycles. However, the market cap of $1.5 billion suggests there is still much room for growth.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.