With the market at historic highs, many cautious investors are probably looking for undervalued stocks instead of chasing hot multibaggers from last year. But investors should remember that many "hot stocks" delivered triple-digit returns for clear reasons, and those catalysts could propel them to new highs this year.
Weibo's monthly active users (MAUs) rose 34% annually to 297 million last quarter, and its revenue climbed 42% to $176.9 million. It's also highly profitable -- its non-GAAP earnings soared 147% to $54.6 million, and its GAAP earnings surged 122% to $32.1 million. Wall Street expects Weibo's revenue and non-GAAP earnings to respectively rise 36% and 138% this year.
By comparison, Twitter's MAUs rose just 3% annually to 317 million last quarter, and its revenue rose just 8%. Its non-GAAP earnings improved 37%, but it remains unprofitable on a GAAP basis. While Twitter sluggishly added new features and added products for consumers and advertisers that missed the mark, Weibo quickly evolved by dropping archaic character limits, reaching out to small and medium sized businesses, and expanding a popular live streaming platform that lets viewers buy virtual gifts for their favorite broadcasters.
Weibo rallied nearly 200% over the past 12 months, and isn't cheap at 127 times earnings. But looking ahead, Weibo trades at just 38 times next year's earnings -- which indicates that the stock could keep climbing this year.
NVIDIA crushed the market with a 280% rally over the past 12 months, but the high-growth chipmaker continues firing on all cylinders. Its core gaming GPU business sidestepped the slowdown in worldwide PC shipments as gamers upgraded their aging systems to play new games, and demand for its higher-end data center GPUs rose as they were installed for machine learning purposes. NVIDIA's Tegra CPU, which never gained a foothold in smartphones, also found a new home in the infotainment and navigation systems of higher-end cars.
All those positive catalysts enabled NVIDIA to post double-digit annual revenue growth for four straight quarters. Its revenue surged 54% annually to $2 billion last quarter, and analysts expect its revenue and earnings to respectively grow 37% and 123% this year. Those growth figures easily justify the stock's trailing P/E of 71 and forward P/E of 40.
The two biggest threats to NVIDIA are AMD's next-gen Vega GPUs, which could steal market share away from its flagship GeForce cards, and the expiration of a graphics cross-licensing agreement with Intel which contributes $66 million in "free" revenues per quarter.
That's why analysts believe that NVIDIA's revenue and earnings will only grow 16% and 12% respectively next year. However, I believe that NVIDIA's investments in connected cars, its design win in the Nintendo Switch, and rising demand for its data center GPUs could counter those near-term threats.
It might seem odd that shares of memory maker Micron doubled over the past 12 months. Its quarterly revenue had fallen year-over-year for six straight quarters before finally rebounding 19% to $3.97 billion last quarter. Its non-GAAP earnings rose 33% to $0.32 during that quarter, but only after it posted non-GAAP losses in the previous three quarters.
The reason is that Micron is a cyclical stock. Demand for Micron's DRAM and NAND chips was sluggish last year due to the slowdown in PC sales, the commoditization of the mobile device market, and a global glut of memory chips driving down prices. But those trends reversed at the end of 2016, with many major device makers mentioning a shortage of memory chips and a spike in prices.
That's why analysts believe Micron's revenue will rise 42% this year as its non-GAAP earnings skyrocket from $0.06 per share last year to $2.42. Based on those forecasts, the stock is trading at just 8 times forward earnings -- indicating that it could climb much further this year.
The key takeaway
I believe that Weibo, NVIDIA, and Micron still have room to run, but investors should clearly understand the risks. Weibo could crash on a slowdown in the Chinese economy or a government crackdown on "inappropriate" messages. NVIDIA could be hurt by a resurgent AMD or challengers in connected cars. Micron could suffer if Chinese chipmakers start flooding the market with cheap memory chips -- as the company warned last December. Therefore, all three stocks are solid growth plays, but investors should do their due diligence before buying any shares.