Estimated read time: 4 minutes
Publication date: 23rd Apr 2021 16:36 GMT+1
Since the markets bottomed out in March 2020, investors have experienced an unprecedented rally primarily driven by strong performance in technology stocks. Since March 23, 2020, the S&P 500 is up 86% while the tech-heavy NASDAQ more than doubled from the bear market depths.
While these major indices are trading near record highs, a few stocks continue to trade a massive discount compared to analyst consensus price targets.
Here, we look at three such stocks that you can consider for market-beating gains right now.
The first stock on the list is electric vehicle (EV) manufacturer Nikola (NASDAQ: NKLA). While stocks in the EV space were on an absolute tear in 2020, most of them have underperformed the market this year. Investors and analysts are concerned over steep valuations as well as rising competition for companies in the EV sector.
Nikola stock is currently trading at $9.65 which is close to 90% below its all-time high of $93.99. Analysts have a 12-month average target price of $26.17 for NKLA stock which is 170% above its current trading price.
In the last few months, Nikola founder Trevor Milton was forced to step down after the company was probed by the SEC (Security and Exchange Commission). Further, its investment deal with auto giant General Motors (NYSE: GM) failed to materialize which contributed to the pullback. Nikola also raised $100 million via a new stock offering this March which diluted shareholder wealth.
However, long-term tailwinds including a worldwide shift towards clean-energy solutions make companies in the EV segment a high-risk high-reward proposition.
Paul Coster, an analyst from J.P. Morgan (NYSE: JPM), lowered his 12-month price target on Nikola to $30 from $33 and downgraded his rating from “Overweight” to “Neutral”. However, Jeffrey Kauffman from Vertical Research initiated coverage on Nikola stock with a “buy” rating and a price target of $24.
Nikola is optimistic about its ability to gain traction in the EV-based trucking industry. It is still a very young company and will look to ramp-up manufacturing as well as automobile deliveries going forward.
The second stock on the list is Skillz (NYSE: SKLZ), a mobile games and eSports entity that went public via a SPAC (special purpose acquisition company) in December 2020. Skillz stock is currently trading at $12.55 which is 144% lower than its 12-month average target price of $30.67.
Skillz has developed a platform that enables gamers to compete and win cash and other prizes. It also allows game developers to keep a percentage of these prizes to host the games. It is basically an intermediary and does not have to spend millions on game development allowing it to enjoy a gross margin of almost 95%.
Earlier this year, Skillz signed a multi-year agreement where developers will compete to launch NFL-themed games on its platform. Wall Street expects the company to grow sales from $230 million in 2020 to $1 billion in 2024.
Another company that is part of the highly disruptive EV space is Plug Power (NASDAQ: PLUG). It provides hydrogen fuel cell turnkey solutions for electric mobility markets in North America and Europe. Plug Power focuses on PEM (proton exchange membrane) fuel cell and processing technologies.
It offers a hydrogen-based PEM fuel cell system known as GenDrive that provides power to material handling EVs. The GenFuel is a hydrogen fueling delivery, generation, storage, and dispensing system while GenCare is a service and maintenance program.
PlugPower offers products to retail distribution and manufacturing businesses via a direct product sales force, dealer networks and OEMs (original equipment manufacturers). This stock is currently trading at $25 which is 120% below its 12-month price target of $55.
PlugPower has already announced two joint ventures this year. It has partnered with SK Group where the latter has a 10% equity stake in PlugPower. The two companies will focus on developing hydrogen fuel-cell solutions for the South Korean market. Plug Power’s JV with Renault will be aimed at gaining traction in the light commercial EV market in Europe.
The final takeaway
We can see that the three stocks on the list are part of rapidly growing markets. However, these investments also carry significant risks given the rise in competition and regulatory issues surrounding these companies.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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