Investing in high-performance stocks at the right time is a path to life-changing returns. The challenge is finding companies that have what it takes to significantly outperform Wall Street's expectations and continue innovating and evolving over the long term.
With sell-offs once again rocking the market and adding to 2020's seemingly unending twists and turns, investors have an opportunity to snap up some potentially explosive stocks at a discount. Read on to find out about three companies that could take advantage of powerful trends and supercharge your portfolio's performance.
Image source: Getty Images.
1. Cloudflare: Tap into the digitization of business and communications
Cloudflare (NET -3.65%) has been one of the year's hottest stocks. Its share price has climbed roughly 220% in 2020 so far and saw a pronounced jump in October following the announcement of Cloudflare One, a comprehensive new network-as-a-service offering. The company now has a market capitalization of roughly $16.7 billion, but its forefront position in content delivery and web security suggests there's still plenty of room for expansion.
Cloudflare One combines the company's content delivery network (CDN) technologies with security services that allow enterprises to protect their applications and devices on an isolated cloud network requiring authentication each time an outside source attempts to access information. Even before the announcement and launch of Cloudflare One, the company was posting very strong growth, and a confluence of enterprise technology trends bodes well for its future. Business and communications needs will increasingly depend on the cloud, which suggests that growth in demand for CDN services and cybersecurity protections is a safe bet.
Cloudflare's sales rose 48% year over year in the second quarter, and the business managed to add a record number of new large customers in the period. The company's most recent guidance called for sales growth of roughly 39% in the third quarter, and it will probably blow past that target when it reports results after the market closes on Nov. 5. Much of the the near-term benefits of the company's new network-as-a-service product may have already been priced in, but the business looks poised for big growth over the long term and its stock has explosive potential.
2. Baozun: Chinese e-commerce has never looked more attractive
China and its economy appear to be bouncing back from coronavirus-related conditions quicker than the rest of the world. Despite challenges created by COVID-19, the International Monetary Fund (IMF) estimates that Chinese gross domestic product will climb 1.9% this year. Meanwhile, the IMF estimates that advanced national economies will see GDP contract 5.5% on average this year.
A comparatively strong economic backdrop adds to the appeal of investing in Chinese e-commerce, which is already the largest online retail market in the world and continues to grow at a rapid clip. The IMF expects that China's economy will grow 8.2% in 2021, and it's likely that the country's online retail industry will have another very strong year. For investors looking to benefit from momentum in the space, Baozun (BZUN 0.42%) stands out as an appealing small-cap stock that could post huge returns.
Baozun is a Shanghai-based company that provides e-commerce website creation tools and other online-retail support services. This focus has meant that the company is frequently compared to Shopify, a high-flying online retail company that's delivered stellar returns for shareholders. However, unlike Shopify, Baozun has mostly been focused on providing services to large Western brands instead of building a customer base of small and medium-size enterprises.
The Chinese online retail specialist should be able to continue posting strong growth as it brings more Western brands aboard its platform and takes a cut as it helps expand their sales. The company's revenue rose 26.3% in the second quarter, and non-GAAP (adjusted) net income climbed 78.6%. Baozun's performance should be even more impressive if the company succeeds in its initiatives to bring more Chinese enterprise customers into its customer base and gain favor among small and medium-size businesses seeking online retail services.
3. Himax Technologies: A turnaround play on display
If you looked at Himax Technologies' (HIMX -1.72%) performance over the last few years, it might not look like much of a growth stock. The company's share price price has sunk roughly 65% over the last three years, sales have stagnated, and earnings have plummeted. Himax's core revenue stream comes from its display driver technologies, which determine the colors displayed by pixels on screens, and weakened pricing power for these products in the mobile and television categories has weighed on performance.
On the other hand, Himax's share price has climbed roughly 36% year to date, and there are signs that the business might be on a cyclical upswing. The company's preliminary Q3 results suggest that it will post sales of $239.9 million in the period, up roughly 46% year over year and 28% sequentially. While its third-quarter profit comparisons are starting from very low comparison points, earnings per share are expected to be up roughly 282% year over year and 626% sequentially.
It looks like the mobile market is getting a boost from new screen technology and a more robust consumer upgrade cycle driven by launches for phones with 5G functionality and other features. Himax also indicated during its last earnings call that it was expecting stronger performance for TV display drivers now that previous inventory build up has been sold through, and the category could see a sustained improvement if 8K television sets gain traction.
Despite this year's gains, Himax is still valued at just three-quarters of this year's expected sales and trades at depressed levels. Shares could see big gains if demand catalysts for display drivers pan out. The company also has other potential growth avenues.
Engineers make up the vast majority of Himax's work force, and the company has been hard at work trying to come up with chips to tap into potentially explosive tech categories including augmented reality, virtual reality, and 3D image sensing. Whether Himax will make breakthroughs in any of these trends is somewhat speculative, but even a single significant design win in an emerging tech market would likely send the stock soaring.
