Summer is here, and that means warm weather, long days, short nights, and, very often, a bit of a stock market rally. So far, this one has been mostly in technology, but with most companies riding high on strong earnings, there’s every reason to think it could widen to incorporate the rest of the market. Lower taxes and share repurchases are likely to keep the stock market performing well for the next few months, which, if you’re planning on pulling all your money out of the stock market this summer, is all that really matters.
What if you are planning on staying invested? Interesting question, though the answer isn’t as happy. Not every company is going to be able to continue to show rising revenue or earnings after a few more months, and many will have a long way to fall when it becomes clear that they were essentially riding on juked numbers. That makes it a stock pickers market, so without further ado, let’s get on with the stock picking.
Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.
AeroVironment (AVAV)
Most people spend some time imagining what shape the future will take, but there are some, such as the folks at AeroVironment (henceforth AV), who are ready to present it to us. AV makes drones for the military, particularly those that aid in intelligence, surveillance, and reconnaissance. These unmanned systems save the lives of many American serviceman, and there seems little doubt that they will continue to be in high demand. They also make chargers for electric vehicles, a rapidly growing industry. What’s causing the most excitement right now, however, is the company’s Quantix drone. Designed for agricultural use, the highly advanced drone is capable of capturing detailed information of entire crops, which can then be analyzed. Despite all this great technology, it must be said that AV’s revenue has essentially been flat for a couple of years, so don’t expect an immediate return on your investment.
Chart courtesy of www.stockcharts.com
Aimmune Therapeutics (AIMT)
Aimmune Therapeutics treats food allergies, and while only about 150 to 200 people each year die from allergies, the potential market for allergy treatment is quite large. The company isn’t making money yet, but it has a very exciting oral treatment for peanut allergy in phase 3 clinical trials right now. The study ends in January of 2019, so it is likely that excitement will be growing as the year progresses. This is a speculative venture, but as with the best of these, the potential upside is a stock worth many times what you pay for it today, while the most you can possibly lose is only 100%.
Chart courtesy of www.stockcharts.com
Axon Enterprises (AAXN)
I identified AAXN as a buy back in March, although I admit I wasn’t precisely raving about it back then. Since then, Axon’s success has been undeniable. The company that makes Tasers, Axon also now provides body cameras to police departments all across America. This is a huge market, as only about 20% to 30% (details are difficult to find) of all police departments are currently using them. Police departments can buy cameras, but the real money-maker for Axon comes when they take the cameras as part of a subscription service. They also get access to Evidence.com, which provides access to all the information caught on all those video cameras. As the company’s revenue expands, one thing becomes clear: departments that begin using body cameras don’t go back. They protect police as much as they protect the public. Axon has the potential to become not only a very big company, but a very important one.
Chart courtesy of www.stockcharts.com
IBM (IBM)
Venerable IBM has gone through its ups and downs, much like its 1980’s rival Apple. The difference, of course, is that Apple is up today, and IBM is down. So why do I believe that IBM can reinvent itself? Actually, it already has. Until recently, IBM has been an integrated solutions company, which in plain speech means they’ll sell you all the hardware and software they can and then sell you consulting services so you’ll know how to use it all. Today, the fastest growing segment of IBM’s business is strategic imperatives, which includes cloud services and analytics. This is the way the whole industry is going, and now that IBM is on board, its revenue decline appears to be at an end. At present, the rapidly growing strategic imperatives segment accounts for 47% of IBM’s revenue. When it very soon crosses the 50% mark, more and more people will start to see IBM as a rising cloud computing company and not a dying hardware and consulting company, and when that happens, expect the price to rise quickly as the Street computes a more generous forward P/E than the current 10.3.
Chart courtesy of www.stockcharts.com
Dave & Buster’s Entertainment (PLAY)
Dave & Buster’s went public in October of 2014, but the story here has been a bit different than many of the “hot” restaurant stocks of the past five years. The concept here is essentially to mix a standard sports bar-restaurant with a family entertainment restaurant. The idea that adults might be drinking beers in the same general area as children playing may be off-putting to some, but the mix seems to be working, as the chain has substantial and rising revenue and earnings. Fourth quarter numbers were a bit softer than expected, but as a result, you can now buy shares of PLAY for about $45, when they were once about $68. I would add that at the current price, valuations (tPE: 16.1, fPE: 15.3) look pretty good.
Chart courtesy of www.stockcharts.com
