The United States economy is resistant to any recession possible. That’s because the strength of this economy lies in its high level of diversification. With the five largest industries contributing to approximately two-thirds of the GDP spread out across different sectors, the impact of economic shocks is mitigated. That diversity forms the foundation of the argument that the U.S. economy can withstand rolling recessions, as some industries may perform better than others during challenging times.
Unlike many other countries, the most known technology corporations have the advantage of being able to raise long-term debt. The largest and most stable U.S. companies have benefited from higher interest rates because they secured favorable rates during periods of lower interest. In particular, these three sleeper stocks have been doing just that, and are set to explode in long-term growth and returns for investors.
Ubisoft Entertainment (UBSFY)
Though Ubisoft has struggled financially recently, success in publications as well as new products lined up for the near future led to a year-to-date (YTD) UBSFY increase of 11.6%.
As the world progressively digitizes, the increase in video game demand is no surprise. The widespread distribution of computers and other electronic consoles in households across the globe has placed video game distributors in a prime position to capitalize on increasing demand, leading to the global market holding a CAGR of 13.4% based on a $217.06 billion raised in 2022. That revenue could double by 2026, with Ubisoft intending to take advantage of potential revenue.
As previously mentioned, UBSFY lacked a robust financial showing in Q1 2023, with revenue shrinking 14.6% year-over-year (YoY). During the period, Ubisoft claimed the instigator of the poor quarter would have contributed to the looming threat of a recession, leading to the cancellation of three games. However, revenue and EPS are both projected for growth in Q2 ‘23, with values of 72.4% and 70.5%.
UBSFY is primed to have large upcoming quarters due to recent partnerships with Microsoft (NASDAQ:MSFT) and Activision Blizzard (NASDAQ:ATVI), as well as the great catalog of games currently in development. Recently, Ubisoft’s cloud game stream service Ubisoft+ reached an agreement with Activision Blizzard to include its games in Ubisoft’s cloud services. With Activision’s global popularity through Call of Duty and World of Warcraft, users purchasing the subscription are projected to increase substantially. Further, on September 22, Britain officially approved the Activision and Ubisoft merger, essentially ensuring this deal would happen.
Currently, UBSFY’s valuation of $6.20 marks a great area for growth. Ultimately, tailwinds with a massive merger slate the stock to explode higher.
Chewy (NYSE:CHWY) is a leading online commerce platform focused on commercial pet-related items, such as food, toys and medicine. The American company has begun to increase services in a popular sector through online presence compared to the traditional brick-and-mortar style of competitor businesses. YTD, CHWY has declined 48%, leading to the current sleeper valuation of $18.29.
A large part of the upside of CHWY is located in Chewy’s pet service industry. Domestically, in 2022, the market as a whole raised $136.8 billion in revenue. Largely, this market has expanded in recent years as a result of 66% of American households owning pets, as well as the recent gradual shift towards e-commerce shopping. Both trends signify great positioning for Chewy to expand, as seen in recent years with financial outcomes.
Q2 2023 marked financial growth in the important categories, beating consensus estimates. Reported revenue was $2.78 billion, or an increase of 14.3% YoY, though net income actually decreased by 15.2% YoY, as a result of increased costs of expansion, detailed below. Despite the marginal setback, revenue and earnings are projected to increase in the upcoming quarter.
During the next financial period, Chewy aims to increase commercial operations by expanding into international services in Canada. International expansions are justified through the expansion of revenue, as well as tapping into a larger commercial audience. Further, if Canadian sales reach profitable commercial expectations, Chewy could look into further expanding services, making the e-commerce platform into the global giant it aims to become.
At the current valuation of $18.29, CHWY’s median target price is $36.94, with an upside potential of 109% over 12 months. Overall, the relatively low valuation with the catalyst of global expansion places CHWY in a price position to boom.
Coveo Solutions (CVOSF)
Coveo Solutions (OTCMKTS:CVOSF), is a software company that partners with firms for their enterprise search, relevance and personalization solutions to enhance digital platform search and relevance capabilities.
As of September 22nd, Coveo Solutions had a YTD growth of 49%. The stock is currently trading at $7.50. Based on analysts’ average price target, Coveo Solutions has a 32% upside potential.
Tech sub-sectors such as software, SEO and AI markets are thriving due to surging demand and dependence on digital technologies in business and daily life. The global software market reached $583.47 billion in 2022. According to economists, it has a projected compound annual growth rate (CAGR) of 11.5% from 2023 to 2030.
Coveo Solutions reported strong financials with $30.5 million in revenue in the last quarter, which dramatically trumped the previous year’s reported revenue of $26.5 million. The company reported $1 million of cash flow from operations in the last reported quarter. Coveo Solutions’ revenue growth, improved cash flow and strong stock performance indicate its positive momentum, which will contribute to increased profitability and expansion opportunities for the company.
CVOSF encouraged growth through its collaboration with 20 Design Partners and 25 Advisory Group partners. That is in conjunction with its relationships with existing tech powerhouses such as Salesforce (NYSE:CRM), SAP (NYSE:SAP), Adobe and many more to leverage its AI capabilities within its existing systems. These moves position Coveo Solutions for accelerated growth and solidify its presence in the AI sub-market. The company’s approach, positions it to have increased adoption and market share in the future.
Coveo Solutions’ strategic actions, coupled with market dynamics increase investor confidence, improve financial metrics and could continue to positively impact the stock price.
On the date of publication, Michael Que did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.