These trio of stocks are operating in promising verticals and can reward investors
In the stock market, identifying hidden gems that may provide exponential growth is similar to striking. This article explores three hidden stocks in a scenario where investments could yield a 5X increase in five years.
The first one is a leader in electronic manufacturing services. It boasts a diversified revenue stream across multiple sectors, mitigating risks and ensuring stability. The second one has an edgy approach to digital advertising, capitalizing on the shift towards online channels’ potential revenue growth. Meanwhile, the third one’s continued bottom-line growth and strategic planning breed potential for value creation in the construction industry.
In detail, these companies’ edgy market positioning and growth projections support the fundamentals for value expansion. A seasoned investor or a newcomer exploring these hidden gems could be the ticket to substantial returns in the upcoming years.
Top-line performance and diversification drive the value of Sanmina (NASDAQ:SANM) up. For instance, in Q1 2024, Sanmina’s revenue was $1.87 billion, with the top line hitting the outlook range between $1.85 billion and $1.95 billion. In other words, despite challenges, the company can meet revenue expectations and stabilize the market.
Further, Sanmina has a great reach in relation to the markets it serves, with 67% ($1.257 billion) revenue contribution coming from the industrial, medical, defense, and automotive sectors, while the remaining 33% ($618 million) comes from communication, networks, and cloud infrastructure.
This diversity through varied sectors means one cannot depend on the other. First, the average contract length is above six years, which reduces risk to revenues through market fluctuations. Second, the top 10 customers constituted 45% of the total revenue, which suggests a broad customer base. Also, this distribution dilutes the dependence on any single customer, with a beneficial increase in stability and revenue volatility reduction.
In addition, Sanmina is very healthy financially, with a balance sheet of $632 million in cash and $1.4 billion in inventory. Low leverage and a strong position in liquidity fortify the company to counter the market complexities and cash in on the emerging opportunities within demand. In Q1, Sanmina generated a strong cash flow from operations of $126 million, with free cash flow of $92 million. This cash-generating ability helps the company maintain organic growth. Also, it helps the company implement strategic transactions and return capital through share repurchases.
Finally, the share repurchase program saw Sanmina buy back 2.1 million shares worth about $106 million in Q1, signaling the edge (undervaluation) as regards the company’s prospects. Hence, the repurchase of shares is indicative of the approach taken by management to the intrinsic worth of the company and could serve to boost EPS by lessening the count of shares in the market.
Opera’s (NASDAQ:OPRA) impressive advertising revenue growth supports the expanding market reach. The company sets a firm foundation on these fundamentals as it pulls into the digital advertising ecosystem. In Q3 2023, the company’s advertising revenue advanced by 24% compared to the same quarter a year ago, representing 39% of total revenue.
Real-time bidding and linking advertisers to hundreds of millions of Opera users worldwide bring deeper insights through Opera Ads. Advertising revenue growth, to Opera, is a critical factor in diversifying its top line and enabling the penetration of markets. First, it showed the company ahead in monetizing its user base by offering targeted advertising solutions. With such solutions, Opera may earn more from advertising revenues and thus be less dependent on other businesses.
Secondly, the growth in advertising revenues would imply Opera’s power to leverage the growth in digital ad demand. As more advertisers extend increased budgets to the online world, Opera may further tap its market share and competitiveness within the advertisement industry.
Further, Opera’s focus on product innovation and differentiation sharpens its competitive position, driving user engagement and monetization. The company’s focus on developing edgy products, as witnessed through the Aria and Opera GX, portrays its strategic vision and customer-oriented approach.
In the end, Opera’s focus on product innovation and differentiation shines through user growth, engagement metrics, and monetization opportunities. For example, in Q3, the company added 26 million monthly active users for Opera GX, which sequentially grew 10%. In addition, Opera GX’s average revenue per user rose 16% sequentially and 23% from the same period a year ago, another healthy indication of monetization potential. All in all, these developments are likely to keep market valuations in positive territory.
Sterling’s (NASDAQ:STRL) bottom line has grown for 11 consecutive quarters year-over-year, indicating that the company has the edge in capitalizing market demand. The sustained growth speaks of robustness in the business model and strategic planning at Sterling.
Sterling has witnessed revenue growth, especially a 13.7% increase in Q3 2023 (or 11.7% organically). Revenue growth is the primary indicator of the company’s ability to compete in the market and perform in sales. This is evidence of how much the demand for the company’s goods and services is growing and how successfully it is taking shares in the market.
Furthermore, the company can afford to increase its sales and profits. Sterling keeps proving its high competitiveness, flexibility, and market relevance by outstripping previous periods back-to-back. In bottom-line growth, it raises Sterling’s profitability and creates value. Specifically, Sterling’s $1.26 diluted EPS in Q3 was 25% higher than last year’s.
Moreover, the company has seen a growth in backlogs, up to 42%, from the beginning of 2023 to over $2 billion. This showed the same high demand for the company’s products and services—hence, strong predictability of revenues into the future. On top of it, Sterling delivered a solid cash flow generation with operating cash flows amounting to $150 million in Q3. This strong cash flow generation enhances the flexibility, liquidity, and strategic ability for growth in the company.
Looking forward, Sterling guided for 32% (over 2022) EPS growth, upward guidance. The upward guidance indicates the management’s stance concerning Sterling’s performance and growth prospects. Therefore, the positive outlook implies upside potential on valuations and multiples.
On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.