Investors are in the market game to make money – and there is plenty of it to be made, as stocks are hitting record levels in recent days. But the coronavirus hasn’t gone away, unemployment is still high, and while it’s possible to argue that we’re in a V-shaped recovery, it’s also possible to argue that the recovery is soft, and fragile.
In this environment, investors want a clear sign to follow. Fortunately, there are two available. The first is momentum, the accumulated drive of a stock’s market trends, and the second is the Smart Score, the single-digit score for every stock, pointing toward likely performance.
We’ve used the Investing Insights platform to find stocks that combine both of these signals for a compelling bullish case. The Smart Score is data-derived; the momentum is more subjective, but it is clear from a look at each stock’s recent share appreciation. They all show strong run-ups to recent high points, a trend that investors should note.
Arlo Technologies, Inc. (ARLO)
With so much in our digital age dependent on tech companies, it only seems fair to start our list with – a tech company. Arlo Technologies (NYSE:ARLO) develops security systems, including wireless cameras, doorbells, and floodlights, along with the cloud-based software to link them in a smart network. The company markets its systems for home or business security.
Arlo’s most recent quarter showed a forecast-beating top line of $66.63 million. This was more than 19% above expectations, and bodes well for Arlo’s future sales. Arlo’s shares rose sharply after the Q2 report. Investors were clearly impressed by the company’s improving sales – and its new product and marketing announcements.
In recent weeks, Arlo has announced new floodlight cameras, as well as a partnership with a major home building in Utah and Idaho. While these states are not the most populous, the West is a fast-growing region, and home security systems are popular in sparsely populated rural areas.
Even though Arlo stock has already delivered a strong performance since the start of 2020 (it’s up 42%), several members of the Street believe shares will further appreciate.
Jeffrey Rand, covering this stock for Deutsche Bank, is impressed by Arlo’s services business model. He writes, “Arlo grew its services business 53% y/y as it continues to see higher attach rates on its new business model focused on shorter trial periods and no free storage. This momentum in its services business should continue as a higher mix of products being sold use the new business model and Arlo starts to see subscription growth from its recent partnerships. Post results, we have increasing confidence in Arlo’s progress in growing its services revenue. With the recurring nature of its services business and a meaningfully higher gross margin vs. hardware sales, we believe that the more positive outlook on the services business should drive a higher valuation…”
To this end Rand rates ARLO a Buy along with a $7 price target. This figure implies an upside of 17% for the next months.
Overall, ARLO has 3 recent Buy reviews and 1 Hold, giving it a Strong Buy from the analyst consensus. Shares are selling for $5.98, and the average price target matches Rand’s $7. (See Arlo stock analysis)
ARLO Smart Score
XPEL, Inc. (XPEL)
Do you love your car? So many of us do. Xpel (NASDAQ:XPEL) lives in the automotive protection niche, offering protective films for car exteriors, as well as tint films and treatments for the window. The company’s products are custom-made to the car.
Last week, XPEL reported EPS far above the forecast, and the stock surged in result. The shares had already been trending somewhat upward; the strong Q2 earnings prompted a $7 spike in valuation that added 35% to the stock. The data that came in: 14 cents per share earnings, against a forecast of only 5 cents.
5-star analyst Jeff Van Sinderen, of B. Riley FBR, writes of XPEL, “Acceleration of overall revenue began in May and established a monthly record in June that was more than double April revenue… XPEL achieved record cash flow during 2Q, driven in part by inventory reduction. XPEL expects to build inventory during 2H. We remind that XPEL’s supply chain has no direct exposure to China, including tiers of suppliers further down the supply chain.”
Van Sinderen rates the stock a Buy, and lifts his price target from $19 to $33. His new target suggests room for 17.5% upside growth.
There are 2 recent Buy reviews on XPEL, making its Moderate Buy analyst consensus rating unanimous. The average price target, at $32.50, implies a 16% upside for the stock in the coming year. (See XPEL stock analysis)
XPEL Smart Score
Calix, Inc. (CALX)
For the last stock on our list, we’re back in the computer tech sector. Calix (NYSE:CALX) is a computer services provider, offering cloud computing, communication software, and networking services. The company’s products make connections on the cloud, so that customers can leverage smart analytics for real-time monetization. Calix boasts a $1.3 billion market cap, and annual sales exceeding $420 million.
Calix saw earnings and revenues contract in Q1 of 2020, when the corona virus crisis struck, but the broad-based moves toward remote work and telecommuting were a boon for this networking company. CALX shares had been gradually rising through the first half – and the Q2 earnings report, which showed revenues and EPS both well above forecasts provided another strong impetus for the stock. CALX has almost doubled during the current market cycle.
Christian Schwab, a 5-star analyst of Craig-Hallum, wrote his firm’s review of this stock, and reiterated the Buy rating. He wrote, “Calix is seeing stronger than expected demand as service provider customers are experiencing increased demand for their networks to handle higher bandwidth levels due to the ongoing work from home environment… We are encouraged that while navigating the challenges of the ongoing global pandemic and shifting to a “work-from-anywhere” culture, Calix was able to continue to see strong execution and customer expansion adding 18 new customers in the quarter.”
Schwab was clearly impressed by Calix’s recent performance. His $25 price target shows his confidence, and indicates room for 21% growth in the year ahead.
All in all, Calix has a unanimous Strong Buy rating from the analyst consensus, based on 3 recent Buy reviews. The stock’s $24 average price target suggests a 16% upside from current levels. (See Calix stock analysis)
CALX Smart Score
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.