Investors invariably gravitate to stock investing in hopes of experiencing explosive gains. However, not just any stock will do. Even with the surge that began in the early days of the pandemic, not all stocks have performed well.
Hence, investors need to look for stocks with considerable potential to increase revenue and hopefully, profits. Fortunately, some stocks have moved past periods of stagnation and now could see such growth. BJ's Wholesale (NYSE:BJ), Qualcomm (NASDAQ:QCOM), and SBA Communications (NASDAQ:SBAC) are three names that offer such potential.
Admittedly, investors had little reason to expect massive increases from this retail stock until recently. Stagnation, slow growth, and massive debt have long defined this East Coast warehouse retailer.
That all changed with COVID-19. The pandemic brought a massive surge in revenue, especially from its online channel. In the most recent quarter, revenue excluding fuel sales rose by 19%, including a 200% increase in online sales. Such gains helped lead to an increase of almost 125% in its adjusted earnings per diluted share.
With three straight quarters of this massive growth, falling debt and a positive book value went a long way toward stabilizing the balance sheet. Moreover, an enormous surge in free cash flow has given BJ's money to expand and improve the business.
Analysts predict profits will rise by more than 105% this year before retrenching by about 13% in 2021. Despite this pause, BJ's will likely hold on to most of these gains. Additionally, at a forward P/E ratio of 16, the stock's price is not yet reflecting the increases.
BJ's began to expand its footprint westward in recent years with moves into Ohio and Michigan. As it continues on this path, BJ's should benefit investors as a regional company starts to build a footprint that could eventually go national.
Despite its dominance of the smartphone chip market, Qualcomm stock struggled for years amid competitor lawsuits and antitrust allegations.
However, its fortunes began to change last year. In 2019, Apple settled its legal disputes with the company, likely because it needed Qualcomm's chipset to offer a 5G iPhone. Moreover, the company persuaded an appeals court to overturn the ruling that it was a monopoly.
Grand View Research forecasts a compound annual growth rate (CAGR) of 63% for the global smartphone chipset market through 2027. For now, Qualcomm remains the only company making this chipset, giving them ownership of this fast-growing niche.
Such growth may help explain why diluted earnings per share surged by 86% in the latest quarter. Furthermore, analysts forecast a 69% increase in profits for the company for this year.
Additionally, the company predicts it will sell between 450 million and 550 million 5G devices in 2021, which would mean 150% growth over last year's levels amid a 5G upgrade cycle.
Qualcomm's current valuation does not reflect such growth. Despite rising by more than 60% this year, Qualcomm stock trades at a forward P/E ratio of about 21. From this level, the company should see significant multiple expansion as more people adopt 5G.
Another likely beneficiary of 5G is SBA Communications. SBA is a real estate investment trust (REIT) that leases space on communication towers to wireless service providers. Its portfolio consists of over 32,000 sites located in 14 countries.
The wireless industry has long relied on these towers to connect wireless customers with phone and broadband networks. However, 5G changes the nature of this dependence. Instead of relying on a few cells placed far apart from one another, 5G technology requires multiple small cells, meaning an exponential increase in demand for tower-like structures.
The financials are already reflecting this demand. In the most recent quarter, adjusted funds from operations (AFFO), which describes a REIT's cash flow, rose by 11% from the same quarter last year.
The company also raised its outlook. It expects to report an AFFO for fiscal 2020 of $9.27 to $9.50 per share. This is well above the $8.48 per share reported in 2019 and $7.59 in AFFO per share the company earned in 2018.
As a REIT, it also pays a dividend. Admittedly, its yield of just under 0.7% is not going to inspire investors. However, as SBA continues to help meet the rising demand for more tower space, the stock should continue to grow over time.