Author: Evan Niu | February 08, 2018
Where to look for potential 100% gains
Every investor is on the lookout for stocks that have the potential to double, which is no small feat.
You can search among companies that are down on their luck and trying to turn their businesses around. However, betting on a turnaround is a risky endeavor. If the company's results start improving, it could rekindle investor confidence and thereby raise its stock price. The flip side is that the company may continue to underperform and, as a result, see its share price stagnate or decline.
Meanwhile, there are stocks that already made huge gains over the past year, but could potentially double this year if they continue to execute well. Of course, the risk here is that these stocks are priced for perfection, and any missteps could be punished severely.
Let's look at five publicly traded companies that appear to have the potential to see their share prices double this year.
1. Chipotle Mexican Grill
It's been a rough couple of years for Chipotle Mexican Grill (NYSE: CMG). After peaking near $760 back in August 2015, shares now trade at less than half that. The company has been plagued by a string of food safety scandals that have severely tarnished the company's brand, which is built on "Food With Integrity."
Consumer perception continues to deteriorate at a time when competition in the growing fast-casual space is intensifying. A Credit Suisse study last summer showed that online sentiment toward Chipotle's brand was near record lows, while UBS downgraded Chipotle's shares earlier this month due in part to concerns around brand perception. Chipotle also had high hopes for its new queso, which promptly flopped among consumers.
To be clear, Chipotle has its work cut out if it ever hopes to reclaim its former glory, but the fact that COE Steve Ells announced in November that he would step down (and become executive chairman) as the company searches for a new permanent CEO should give shareholders some hope. While Ells was instrumental in growing Chipotle to where it is today, it's clear that new leadership is desperately needed to fix the systemic issues that caused repeated food safety issues and to repair the company's brand. Shares jumped 6% on that announcement.
Chipotle has not yet found its new CEO, but if the burrito slinger can find the right person to turn things around, then shares could enjoy significant upside.
GoPro (Nasdaq: GPRO) is a clear candidate for a turnaround. The action camera maker was an almost immediate disappointment from its IPO, as it quickly became clear that the market for action cameras was a lot smaller than GoPro had previously hoped. Shares peaked at about $87 a few months after going public, but then they plummeted into the single digits as investors gave up on the idea that the company's products would achieve widespread adoption.
The company also just reported disappointed earnings for the fourth quarter, with sales falling 38% to $335 million -- far short of the company's own guidance of around $470 million. GoPro also said last month that it would discontinue its Karma drone and pursue a restructuring to better align its cost structure.
Perhaps the most promising scenario would be an acquisition. GoPro has retained JPMorgan to help advise on potentially selling the company, according to CNBC. CEO Nick Woodman clarified that the company was not actively seeking a buyer and would prefer to remain an independent company, but it's open to considering offers, which is why it hired a financial advisor.
Depending on how GoPro shares perform from here, and whether an interested suitor comes along, this stock could potentially double in the event a strong acquisition offer is made or a bidding war emerges. Those aren't necessarily likely outcomes, but they're definite possibilities.
Much like GoPro, Fitbit (NYSE: FIT) is a turnaround candidate that lost investor favor shortly after going public. Fitbit's core product category, basic fitness trackers, was enjoying robust growth and increased consumer interest for a while, but its timing couldn't have been worse: Fitbit went public in mid-2015, just a couple months after Apple (Nasdaq: AAPL) launched its first Apple Watch.
Apple Watch has helped catalyze adoption of multipurpose smartwatches, a category that the Apple Watch now leads and that has largely cannibalized single-purpose wearable devices like Fitbit's fitness trackers. The same trend played out years ago when single-purpose point-and-shoot cameras were cannibalized by multipurpose smartphones. Market researcher IDC expects the broader wearables market to continue shifting towards smartwatches.
While that trend is bad for Fitbit, the company is not sitting idle. Fitbit started acquiring smaller companies in 2016 that would lay the foundation for its smartwatch strategy, which culminated last year with the launch of Ionic, Fitbit's first full-fledged smartwatch that can support third-party apps. The product launched just in time for the busy holiday shopping season.
Fitbit has not yet announced when it will report fourth-quarter earnings, but given how much is riding on Ionic, blowout results could help the stock bounce back from its depressed levels. It's too early to say whether Ionic can drive a turnaround, but early success could allow Fitbit to accelerate development of its smartwatch platform. There has also been the occasional acquisition speculation, which could also translate into upside if any offers actually materialize.
4. Universal Display
Universal Display (Nasdaq: OLED) may seem an unlikely candidate to double in 2018, especially after shares tripled in 2017. However, if you consider the underlying cause of last year's outperformance, there are reasons to be optimistic about the continued adoption of Universal Display's OLED (organic light-emitting diode) technology, which allows for thinner screens with deeper blacks and higher contrast.
Much of the excitement surrounding OLED in 2017 was attributable to Apple's iPhone X, the first Apple device to use OLED technology in its primary display. While rivals have been using OLED displays for many years, few have the scale and volume that Apple commands. Given its sheer weight, Apple has a unique ability to drive adoption of chosen technologies, which can make or break entire industries. Apple is expected to expand its use of OLED displays in 2018, although these product plans could easily change.
Beyond Apple, Universal Display continues to post impressive results. Revenue more than doubled in the third quarter, with materials sales jumping 100% and licensing revenue soaring 131%. CFO Sidney Rosenblatt said in a statement, "During the quarter, momentum in the OLED industry continued to grow, from the launch of new flagship OLED smartphones, to increasing demand for OLED TVs, to announced launch plans for the world’s first foldable OLED display product."
The OLED industry continues making progress in ramping production capacity to accommodate this demand from consumers and gadget makers. IHS Markit predicts that global AMOLED (active-matrix OLED) panel production capacity will more than quadruple over the next five years, which would ultimately benefit Universal Display as the primary seller of OLED materials and licensor of OLED technology. Universal Display recently completed a new OLED materials production line at supplier PPG that will double its own capacity.
Universal Display will report fourth-quarter earnings on Feb. 22.
Just about all modern consumers know what a pain it is to manage their many passwords. On the consumer front, services like 1Password or LastPass have popped up to help people manage their passwords and online identities. However, as is often the case, the business-focused side of the industry is much more promising. Many companies are even adopting an Identity-as-a-Service (IDaaS) model, generating recurring revenue from ongoing subscription services.
That's where Okta (Nasdaq: OKTA) comes in. The young company has quickly become a leader in the growing identity and access management (IAM) sector, and Okta is already putting up strong growth rates after going public nearly a year ago. Revenue jumped 61% in the third quarter to $68.2 million, while billings jumped 54% to $78.6 million. Okta now has over 600 customers that are spending $100,000 or more per year, up 64% from a year ago.
Larger companies have started to pay more attention to IAM, with Alphabet subsidiary Google acquiring Bitium last year in a move that largely validates the importance of IAM in the years ahead. With a market cap of $3 billion, Okta still has plenty of room to run as the IAM industry grows in lockstep with the broader cybersecurity arms race.
Evan Niu, CFA owns shares of Apple, Chipotle Mexican Grill, Okta, and Universal Display. The Motley Fool owns shares of and recommends Apple, Chipotle Mexican Grill, Fitbit, GoPro, and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Okta. The Motley Fool has a disclosure policy.