Some stocks are quick to grab our attention. These may be companies with the next ‘in’ thing, in society or technology, or they may be stocks that bring a high dividend, or they may be the stocks that have shown strong recent gains.
Let’s talk about that last, because following the fast-growing stocks is a strategy that many investors prefer. Call it momentum investing; seeking out the stocks that have built up a head of steam in their recent gains – and are poised to keep going. It’s a financial market version of Newton’s first law – an object in motion will tend to keep moving.
Capitalizing on the inertia of fast-growing stocks can bring solid returns to your portfolio; the hard part is determining which such stocks are in the for long term, and are one-hit-wonders.
We’ve used the TipRanks database to find three stocks that outperformed the broader markets in recent months – and have been holding value near their one-year high marks. These are stocks with Strong Buy ratings and enough upside potential to convince Wall Street’s analysts that what goes up might not come down any time soon. Here are details.
Paratek Pharmaceuticals (PRTK)
We’ll start in the biotech industry, a sector that is well-known for the frequently extreme nature of its growth potential. Paratek is a commercial-stage company, engaged in the development and marketing of medications for community-acquired bacterial infections. These are diseases that have acquired antimicrobial resistance (ABR), making established treatments less effective.
Paratek has two products – Nuzyra and Seysara – on the market with FDA approval. Nuzyra is a treatment for community-acquired bacterial pneumonia (CABP) and acute bacterial skin and skin structure infection (ABSSSI), while Seysara is used against inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 9 years and up.
In addition to approved uses, Nuzyra remains the subject of an ongoing preclinical study into its efficacy as a treatment for pulmonary anthrax. This research is undertaken in conjunction with the Department of Defense Biomedical Advanced Research and Development (BARDA), as anthrax has known potential as a bioweapon. Nuzyra is also in a Phase 2 clinical trial against non-tuberculosis mycobacteria (NTM).
All of this puts Paratek in the biopharma sector’s sweet spot – it has drugs on the market, and an active research pipeline. And the company’s market niche is substantial: annually, there are more than 700,000 deaths globally from antimicrobial resistant infections, including 160,000 in the US alone. These infections impose an annual cost, just in the US, of $20 billion in healthcare costs and $35 billion in lost production activity.
Paratek’s path forward, and its potential gains, can be seen in the company’s recent share growth — the stock is up 64% so far this year.
In its Q1 report, the company showed $16.4 million in revenue, which included $13.2 million in US sales of Nuzyra. This marked the fourth quarter in a row of sequential revenue gains. The outlook going forward is upbeat, as BARDA made its first procurement of Nuzyra during Q1. The purchase, worth $38 million, is set for delivery in the second quarter.
Covering PRTK shares for BTIG, analyst Robert Hazlett sees a clear path for accelerated sales growth.
"We continue to maintain our aggressive '21 Nuzyra revenue estimate of $195mm, as we expect the company to outperform vs. guidance as it pivots more broadly, as COVID effects lessen, and the all oral CABP regimen begins to resonate (we estimate commercial Nuzyra sales of $80mm vs guidance of $62-$68mm). Nuzyra's consideration in NTM infection could further bolster its revenue over the long term; a Phase 2b study in the indication is to start in June '21," Hazlett noted.
In line with this outlook, Hazlett rates the stock a Buy along with a $34 price target. The analyst, therefore, expects the stock to climb ~230% over the coming months. (To watch Hazlett’s track record, click here)
Overall, there are 3 recent reviews on record for Paratek’s stock, and they are unanimous – to Buy, making the consensus rating a Strong Buy. The shares are priced at $10.31, and the $22 average price target suggests a 113% upside in the coming year. (See PRTK stock analysis on TipRanks)
Valvoline, Inc. (VVV)
The second stock we're looking at is Valvoline, a major producer of automotive petroleum derivatives, including fuels, fuel additives, and lubricating oils. The company also produces engine coolants. Valvoline is the second-largest oil change service provider in the US, and has over 1,500 service locations. The company boasts a 10% market share in the oil change business, and is the #3 provider, in the US, of DIY motor oil.
Gasoline and motor oil are about as mundane as automotive products get – they are also essential, and Valvoline’s sheer size in the market has helped to fuel its stock momentum. The economic reopening, as COVID restrictions fall to the wayside, has also provided a boost. The company’s stock price has gained 49% year-to-date, and is currently hovering near an all-time high.
Revenues are also up. The company registered declines in Q2 and Q3 of fiscal 2020, during the corona crisis, but since then, the top line has recovered and the past three quarters – 4Q20, 1Q21, and 2Q21 – have shown the highest revenue of the past 9 quarters. The most recent quarter, fiscal Q2, showed $701 million at the top line and EPS of 37 cents per share. This compares to $578 million in revenue, and 33 cents EPS, in the year-ago quarter.
5-star analyst Laurence Alexander, of Jefferies, notes Valvoline’s strong performance, and sees solid upside to margins as global economies recover.
"On a consistent store set, EBITDA margins improved to 37.0% in FY20 from 32.7% in FY15. Margins should continue to have an upward bias from the transition to synthetics (>3x the gross profit/visit, 1.5x the margin of conventional oil changes, more than enough to offset a ~15% increase in drain intervals), improving returns as new locations mature, and layering in higher-margin services (almost a third of ticket growth in recent years). This effect will be masked by layering in new store locations (a 100-200bps margin headwind) and a mix shift away from franchises," Alexander wrote.
The analyst summed up, "Valvoline remains, in our view, quintessential QARP (quality at a reasonable price)… the business model remains underappreciated…"
To this end, Alexander rates VVV shares a Buy and his $44 price target indicates confidence in ~29% growth on the one-year time frame. (To watch Alexander’s track record, click here)
Valvoline’s Strong Buy analyst consensus rating is based on a 5 to 1 Buy versus Hold breakdown of the 6 recent reviews. The average price target of $38.83 implies a 12-month upside of ~14% from the current trading price of $34.20. (See VVV stock analysis on TipRanks)
Veeco Instruments (VECO)
Last but not least is Veeco Instruments, a supplier of capital equipment, that is, machine and production tools. Veeco designs and builds processing systems used in the manufacture of a wide range of tech goods and devices, including LED lighting, data storage, semiconductors, and display screens – to name just a few. Veeco’s systems help device makers to ramp production up to industrial scale.
Like many industrial producers, Veeco saw business slip in the first half of 2020 – the economic rebound has seen the company hit new highs. Revenues in 4Q20 and 1Q21 were the highest of the past two years; the top line in 4Q20 came in at $138.9 million and for 1Q21 it registered $133.7 million. EPS turned from a thin loss in Q4 to a 4.7 cent per share profit Q1. The 1Q21 results compared to $104.5 million in revenue and a 1-cent EPS loss in the year-ago quarter.
VECO shares have reflected the improving financials, and he stock is up 84% since this time last year.
Reviewing Veeco’s shares for Northland is Gus Richard, who holds the #30 ranking out of more than 7,500 Wall Street analysts. Richard goes into detail on the tools that Veeco’s customers are evaluating, as this is a key to understanding the company’s runway.
“VECO has 6 tools at customers for evaluation and expects to ship 4 more over the next several months. This includes 5 LSA tools…, 2 lithography systems for advanced packaging, 2 MOCVD systems…, and one unspecified semiconductor application. We believe that if just the evaluation tools are converted to revenue they would generate $35M to $50M. If all 10 evaluations are successful the revenue opportunity over the next 3 years is $350M to $500M,” Richard opined.
The 5-star analyst concluded, "…we think VECO will be amply rewarded for its efforts over the next couple of years. VECO is profitable and has valuation support at 2x revenues with a number of potential positive catalysts."
Considering the company’s solid potential for increased revenues in the mid-term, Richard rates the stock an Outperform (i.e. Buy). His price target, at $32, implies a 30% one-year upside. (To watch Richard’s track record, click here)
A look at the other reviews on record shows that Richard is not an outlier; all 4 are unanimous to Buy VECO shares, giving the stock its Strong Buy consensus rating. VECO is priced at $24.61 and it has an average price target of $29; this suggests a one-year growth potential of ~18%. (See VECO stock analysis on TipRanks)
To find more 'Strong Buy' stocks with momentum, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.