What stocks have the best chance to outperform this year? Look for stocks that are already cruising, but still underappreciated by Wall Street. While most investors think the “winning trades” have already become too crowded with bullish traders, the truth is that there are still many stocks to buy in hopes of serious outsize gains.
In fact, a number of outperformers are among the most hated stocks on Wall Street.
When you’re hunting for stocks to buy to beat the market in an already-charging bull run like we currently are, it pays to focus on the underappreciated performers. In fact, we’ve recently done just that — and we’ve uncovered a bevy of stocks with the potential for double-digit gains as the crowd capitulates on their bearish outlook, turning into buyers themselves.
#1 — United Rentals (URI)
United Rentals, Inc. (NYSE:URI) is trading higher on positive earnings, but the stock already had a great tailwind as it moved into 2017. The push toward rebuilding and focus on infrastructure has a positive effect on heavy machinery companies, and obviously companies that rent out this equipment.
United Rentals is trading 65% higher than where it closed out the third quarter of 2016, and Wall Street is only starting to catch on to the rally. Short sellers have been caught on their heels, as the short interest ratio remains near 5. And Wall Street analysts have some catching up to do, as only 19% of those tracking the stock have it ranked as a buy.
The recent move takes United Rentals into new all-time high territory. That will grab investors’ attention and attract a new crowd of investors into the mix. In fact, our models expect optimism to take hold strongly enough that it will spark shares to a doubler between here and the end of the year.
#2 — CSX Corp (CSX)
Just a few weeks ago, CSX Corporation (NASDAQ:CSX) was trading at $36, and nobody thought it would have a chance of gaining significant ground in 2017.
Now, with a shift in the leadership in the rail industry, the pundits are turning to believers. Shares now trade at $48, and believe it or not, CSX — a stodgy railroad stock — still has the potential to double from here.
Transportation stocks are taking a leadership role, as they should in an improving economy. CSX has been a leader among the group and will continue this role. Shares are trading to new all-time highs on improvements in the economy and activist involvement, and they’re well above technical support trends.
Wall Street, however, is sour on the stock nonetheless. Nearly 60% of analysts tracking CSX view it as a hold or a sell. All that means to us is ample opportunity to ride the wave of upgrades that are likely to happen in coming months as analysts change their minds to look like they’ve caught on.
Construction and infrastructure spending are on the rise, and solutions for transporting oil and other energy solutions domestically are becoming a focus. CSX looks to benefit dramatically, and our models are suggesting a $100 price target by the end of the year.
#3— Alcoa (AA)
Following the industrial and rebuilding theme, shares of lowly and all-but-forgotten Alcoa Corp(NYSE:AA) are among those we think could double by 2018.
Basic materials stocks tend to thrive in a growing economy. For years, Alcoa and other metal-related companies had struggled to fight off cheaper materials from overseas. Now, these stocks are benefiting from the suggestion that we could see tariffs put in place to help our domestic producers.
Like CSX and transports, steel and other basic materials companies have taken the flag and are leading the market. They’re also attracting professional money managers’ attention.
They haven’t yet caught analysts’ attention, though, as only 38% of those tracking the stock have it ranked a buy. That’s a lot of room for the “crowd” to move into Alcoa shares, which will, of course, drive prices even higher.
Alcoa shares are in the process of fighting to get back above the $40 level. This is a trigger price that, if achieved, should attract a new wave of bullish investors. From there, are ultimate upside target is $75.
#4 — Nvidia (NVDA)
One of the best rules that investors can follow is the simplest: “The trend is your friend.” There are few trends that have been friendlier than Nvidia Corporation (NASDAQ:NVDA) over the last year.
Yes, NVDA shares are already up a stunning 280% over the past couple months, with very few interruptions. The reason is simple: strong fundamentals, strong technicals … and investors still refuse to believe it can go higher.
Nvidia is climbing the Wall of Worry.
With only 60% of the 25 analysts covering the stock ranking it as a buy, the “wall” appears to be much higher than investors expect. Strong earnings have reflected Nvidia’s growth in products, which power our computers, mobile devices, and increasingly cars and even our homes.
We’ll likely see Nvidia pick up even more, as consumer confidence and spending are improving.
NVDA shares have pulled back from their post-earnings rally after correcting by about 17%. Our models indicate that this is just a rest before the stock makes its next move higher. We expect that move to be part of the rally that carries Nvidia to a third straight year of triple-digit returns.
#5 — Regions Financial (RF)
Regional banks and other financial institutions are benefiting from the growing economy and the likelihood of higher interest rates.
Shares of Regions Financial Corp (NYSE:RF) are trading about 35% higher from where they sat in November as traders entered the sector to grab these stocks at a discount. But that’s good news for investors, because traders are almost early to the show.
This means the latest rally was just the first in what should be a longer run.
Where will the next round of buyers come from? Upgrades to the sector, and Regions Financial, of course. We should see plenty of these, too, as the analyst community is overwhelming in the hold or sell camp right now.
Another aspect that our models like about RF shares is the low price of just under $15 per share. While nominal price doesn’t imply value, investors do tend to favor low-dollar-price stocks that reflect good fundamental strength, as Regions Financial does. Actual earnings have outpaced expectations nine of the past 12 quarters, and the market’s reactions to those earnings announcements have been decidedly positive.
The current fundamental and technical backdrop suggests a price target of roughly $30 for Regions Financials.
#6 — Verizon Communications (VZ)
Perhaps the boldest call of all is a telecom doubler.
Communication companies like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc.(NYSE:T) are seeing a changing dynamic. For the last quarter, Verizon shares have declined more than 5% as investors have moved away from telecom in general (because of interest rate fears), but also as the buyout of Yahoo! Inc. (NASDAQ:YHOO) has taken too many twists and turns.
But there’s more on the horizon for telecoms in 2017. The merging of the content and delivery companies appears to be gaining some traction as we move forward. This move changes Verizon from an income stock to a growth-and-income stock in our books. That categorization multiplies Verizon’s outlook for the year.
With a P/E ratio of 15, Verizon shares remain “cheap” in a market where investors are getting more nervous about valuation. While shares have been technically challenged of late, they remain above intermediate- and long-term support level. And sentiment toward Verizon is decidedly negative. Currently, just 40% of those tracking VZ consider it a buy — a good contrarian indicator in our books.
Improvements in the economy and the likelihood of mergers-and-acquisitions-fueled growth mean the potential for triple-digit returns in this sleeping giant.