It is hard to keep a secret on Wall Street. High-performing stocks tend to be well-known to most investors, even if there's usually a debate about every company's future growth prospects.
Yet many excellent businesses fall out of favor among investors or are ignored for temporary challenges that don't threaten the bullish thesis. Let's look at two of these overlooked gems in the tech world: Garmin (GRMN 1.07%) and Palo Alto Networks (PANW 1.43%).
1. Garmin is diverse
There are many reasons why Wall Street has navigated away from Garmin's stock lately. Growth has turned negative compared to soaring results a year ago, profitability is falling, and Apple is a new competitor in a key tech product niche.
But smart investors can look past those issues and focus on Garmin's bright future. Consider that sales are on track to expand for a seventh consecutive year in 2022 even on top of huge gains in earlier phases of the pandemic. Garmin's annual revenue footprint is approaching $5 billion compared to $3.8 billion in 2019.
The company is well diversified, too, with dozens of hit products spanning the fitness, smartwatch, and adventure watch categories. Garmin has major businesses in aviation and marine navigation, too. Growth in some of these areas offset losses elsewhere to keep sales steady through the first half of 2022.
Continued market share gains in these areas should combine with rising margins to amplify earnings growth following this current growth hangover. And investors are being quoted an attractive price for the stock, which is down nearly 40% so far in 2022.
2. Palo Alto Networks is profitable
Palo Alto Networks' stock is outperforming the market this year, but Wall Street pros might still be underestimating its potential. The cybersecurity platform is growing quickly, after all. Sales jumped 27% in the most recent quarter and billings soared 44%. Management credited the rapid innovation rate for helping convince more enterprises to sign on to larger and larger annual contracts.
The biggest knock on the stock over the last few years had been that Palo Alto couldn't demonstrate a clear path to profitability. Yet that issue may be behind the business now. The company achieved profitability under generally accepted accounting principles (GAAP) this past quarter for the first time since 2018. CEO Nikesh Arora and his team project continuing margin expansion, balanced with solid sales growth, through the current fiscal 2023 year.
PANW Free Cash Flow data by YCharts
Sure, unfavorable economic trends could threaten that bullish outlook and perhaps weaken earnings over the short term. But this software-as-a-service stock is on pace to convert over one-third of its sales into free cash flow this year. That impressive metric reflects a strong operating model that's likely to deliver market-thumping returns over many years as businesses continue shifting more work toward hybrid and remote work platforms.
When Wall Street pros are avoiding a stock, there can often be good reasons for the bearishness. But with Palo Alto Networks and Garmin, investors are ignoring healthy metrics like cash flow and market share growth to focus too much on short-term volatility. Consider capitalizing on that disconnect by adding these stocks to your watch list today.
