On any given business day, millions of people pay attention to the blinking lights and flashing numbers they believe make up “the stock market.”
Unfortunately, just a tiny percentage of those people will ever understand the real secret to making money in stocks.
These folks forget that a stock isn’t just a flashing light on a screen. When you buy a stock, you buy a partial ownership stake in a real business.
You own a slice of that company’s equipment, inventory, patents, real estate, and brands. You become financially exposed to both the company’s upside and downside.
The major drivers of a stock’s price are earnings (or the anticipation of them). The more a company grows its earnings, the more its shares will be worth.
That said, stock price trends can diverge from earnings trends for a while.
But, rest assured, over the long term, if a company grows and grows the amount of cash it takes in, its share price is sure to head higher.
That’s how the market works. It’s the “iron law” of the stock market.
And that’s why if you’re looking for stocks with massive upside potential, you should focus on the companies with massive revenue and earnings growth.
This is especially true now.
FactSet noted that, as of March 31, S&P 500 first-quarter earnings are expected to fall 6.6%, while revenue is anticipated to increase 1.9%. For calendar year 2023, earnings are forecast to rise 1.5% and revenue is projected to increase 2%.
So, if you want to make money during earnings season, you need to be invested in companies that boast strong earnings and sales, as these are the companies that should be rewarded by investors.
To help ensure that you’re invested in stocks that are well-positioned to soar during earnings season (and beyond), here are five undervalued growth stocks set to skyrocket in the coming months.
Let’s take a look…
Undervalued Growth Stock No. 1: AAON
AAON, Inc. (AAON) entered the HVAC (heating, ventilation and air conditioning) business with the acquisition of John Zink Company in 1988. It further expanded operations with the acquisitions of Coils Plus and Wattmaster Controls, as well as the more recent acquisition of BasX Solutions in 2021.
Today, AAON is a global leader in HVAC equipment, developing and manufacturing semi-custom heating and cooling solutions for its commercial and industrial customers. The company operates three manufacturing facilities – AAON Oklahoma in Tulsa, AAON Coil Products in Longview, Texas, and BasX in Parkville, Missouri – where it continues to boost production lines and introduce new products.
The acquisition of BasX Solutions helped the company enter the hot hyperscale data center market.
Overall, AAON’s products are utilized by governments, restaurants, education facilities, convenience stores, supermarkets, healthcare facilities, manufacturing and more! And demand for the company’s products has been booming, as evidenced by its record fourth-quarter 2022 results.
During the fourth quarter, sales jumped 86.8% year-over-year to $254.6 million, and its backlog soared 110.6% year-over-year to $548 million. Fourth-quarter earnings surged 545.5% year-over-year to $0.71 per share, which beat analysts’ estimates for $0.56 per share by 26.8%.
With the record backlog at the end of 2022, AAON is extremely bullish about the year ahead. Company management stated, “While it is early in the year, we are optimistic AAON is positioned to achieve another record year of sales and earnings.”
For fiscal year 2023, the analyst community currently expects earnings of $2.52 per share on $1.02 billion in sales. That represents 35.5% annual earnings growth and 14.8% annual sales growth.
Undervalued Growth Stock No. 2: Allegro Microsystems, Inc.
Allegro Microsystems, Inc. (ALGM) is a leading supplier of sensor and power integrated circuits (ICs), as well as photonics. The company boasts that it’s the number-one supplier of magnetic sensor IC solutions and a top supplier of power ICs and photonics. Its products are utilized in everything from the engine and safety systems in vehicles to data centers and automated factories.
Breaking its business down further, Allegro Microsystems is at the forefront of developing chips for vehicles, including electric and hybrid vehicles. The company notes that more than nine of its devices are used in the typical vehicle, and it provides one of the biggest portfolios of hybrid solutions for 48V systems. Allegro Microsystems also ships more than 100 million units of critical safety applications for autonomous vehicles each year.
Allegro Microsystems also provides solutions to the industrial sector, providing devices that boost safety and performance in buildings and factory operations, motorcycles and scooters, and power tools. In regard to infrastructure, the company provides solutions for data centers, electric vehicle (EV) charging stations, solar energy and other renewable power applications. And Allegro Microsystems also provides sensing solutions for consumer devices like small and big appliances, HVAC systems, personal electronics and gaming devices.
So, it’s no surprise that, in its more than 30-year history, Allegro Microsystems has shipped more than 11 billion sensors.
The company has been public for less than three years, but it’s grown exponentially in this time.
In fact, during its third quarter in fiscal year 2023, Allegro Microsystems achieved record sales of $248.8 million, or a 33% year-over-year increase, with record automotive sales of $170.1 million. Earnings nearly doubled year-over-year to $0.33 per share, while adjusted earnings came in at $0.35 per share, topping estimates for $0.32 per share.
Undervalued Growth Stock No. 3: Catalyst Pharmaceuticals, Inc.
Catalyst Pharmaceuticals, Inc. (CPRX) was the first company in more than 35 years to receive FDA approval for its treatment (amifampridine) for adults with Lamber-Eaton Myasthenic Syndrome (LEMS).
The company aims to develop more treatments like amifampridine in order to improve the lives of patients who suffer from rare diseases and have few to no treatment options. Currently, Catalyst Pharmaceuticals is focused on expanding the indication for amifampridine to include some pediatric LEMS patients in the U.S.
Its amifampridine treatment is marketed as FIRDAPSE, and Catalyst Pharmaceuticals achieved record sales for it in the second quarter. FIRDAPSE sales jumped 57.7% year-over-year to $53.0 million. The company also noted that the FDA is reviewing its supplemental New Drug Application for FIRDAPSE to treat pediatric patients.
The company posted record results in fiscal year 2022, as strong sales of FIRDAPSE added to its top line.
Full-year revenue jumped 52% year-over-year to $214 million, with FIRDAPSE sales up 59% year-over-year to $61 million. Full-year earnings were $83 million, or $0.80 per share, or 112.8% annual earnings growth. Analysts only anticipated earnings of $0.73 per share.
The fourth quarter 2022 capped off this exceptional year. Catalyst Pharmaceuticals achieved fourth-quarter revenue of $61 million, or a 59% year-over-year increase. Earnings soared 177.8% year-over-year to $25 million, or $0.22 per share. Analysts expected fourth-quarter earnings of $0.21 per share.
Fiscal year 2023 forecasts are for earnings of $1.51 per share and revenue of $94.08 million, up from earnings of $0.75 per share and revenue of $214.2 million in 2022.
Undervalued Growth Stock No. 4: DHT
DHT Holdings, Inc. (DHT) operates crude oil tankers in Monaco, Singapore and Norway. The company was founded back in 2005, and over the past 17 years, the company has expanded by acquiring crude oil tankers, all with long-term time charters. Currently, DHT Holdings operates 24 crude oil tankers with the capacity of 8.04 million deadweight tons.
Fourth-quarter earnings surged to $0.38 per share, up from an earnings loss of $0.02 per share in the same quarter last year. Analysts expected earnings of $0.30 per share, so DHT posted a 26.7% earnings surprise. Fourth-quarter revenue soared 136.7% year-over-year to $116.7 million, topping estimates for $108.88 million.
For its fiscal year 2022, DHT Holdings reported earnings of $0.37 per share and revenue of $264.9 million, compared to an earnings loss of $0.07 per share and revenue of $203.4 million in 2021. These results also beat estimates for earnings of $0.27 per share and revenue of $261.21 million.
For full-year 2023, analysts project earnings of $1.05 per share and revenue of $419.33 million. This compares to earnings of $0.37 per share and revenue of $264.88 million in full-year 2022.
Undervalued Growth Stock No. 5: Fortinet, Inc.
Fortinet, Inc. (FTNT) provides unified security solutions that can be deployed over digital networks to protect users against malware, spam and network intrusions. The company provides its security solutions to data centers, enterprises, carriers and distributed offices around the globe. Fortinet currently boasts a portfolio of 1,250 issued patents and 251 pending patents.
Since its founding back in November 2000, the company has had a meteoric rise. Over the past 21 years, it has shipped more security solutions than any other cybersecurity firm worldwide. It has sold more than seven million units of its security solutions, and it has a base of more than 500,000 customers. And since 2002, its revenues have surged from just $2 million to $2.6 billion in 2020.
Fourth-quarter revenue increased 33.1% year-over-year to $1.28 billion, with product revenue accounting for $540.1 million and service revenue of $742.9 million. The company also had total billings of $1.72 billion in the fourth quarter, or a 31.6% year-over-year increase. Analysts expected total revenue of $1.29 billion.
Fourth-quarter 2022 earnings jumped 70% year-over-year to $349.7 million, up from $205.8 million in the same quarter a year ago. Earnings per share soared 76% year-over-year to $0.44 per share, which compared to $0.25 per share in the fourth quarter of 2021. Analysts expected earnings of $0.39 per share, so Fortinet posted a 12.8% earnings surprise.
Fortinet’s full-year 2022 results were equally impressive: The company reported total revenue of $4.42 billion and earnings of $961.6 million, or $1.19 per share, which represented 32.2% annual revenue growth and 44.4% annual earnings growth. Estimates called for earnings of $1.15 per share on $4.43 billion in revenue.
For its fiscal year 2023, Fortinet forecast revenue between $5.37 billion and $5.43 billion and earnings per share between $1.39 and $1.41. The full-year forecast is also above analysts’ current estimates for earnings of $1.39 per share on $5.36 billion in revenue.
Prospering in a Narrow Market Environment
Here’s the reality: The stock market is narrowing, so I expect fundamentally superior stocks – including the five I discussed with you today –to skyrocket and emerge as the new market leaders as they continue to grow their sales and earnings.
So, you want to jump on these companies before they start firing on all cylinders.
Before we go, let me remind you that you’re now also a member of my free Market 360 newsletter.
In Market 360, we discuss a variety of topics, ranging from the latest happenings in the markets to updates on stocks, earnings, exciting new trends and much, much more. Keep an eye on your email inbox for my next Market 360 article soon. I typically send them every Tuesday, Thursday, Friday and Saturday. In the meantime, you can check out the Market 360 archive by clicking here.
And if you haven’t yet, I recommend giving Portfolio Grader and Dividend Grader a spin. These are incredibly powerful tools that individual investors can use to help find the best stocks… as well as which stocks to stay far away from.
Sincerely,
Louis Navellier
