The entire stock market is gearing up for a major breakout as investors are becoming convinced that the banking sector has stabilized and that the Federal Reserve is, at the very least, almost done hiking interest rates. Meanwhile, two critical sectors –housing and computer chips — are showing signs of recovery. Many investors are starting to focus on the economy’s strong fundamentals instead of quaking in fear about interest rate hikes. In this environment, there are many potential breakout stocks.
The Street gets enamored with certain sectors for several months, and the names within those spaces perform very well during those periods. Therefore, in this article, I will focus on stocks that have not yet broken out to a great extent, even though they are in sectors that are being embraced by “the big money.”
Here are seven potential breakout stocks for investors and traders to consider.
Potential Breakout Stocks: NXP Semiconductors (NXPI)
Many semiconductor stocks have surged recently, as the well-known Van Eck Semiconductor ETF (NASDAQ:SMH) climbed about 10% between March 15 and March 30. Of course, many chip makers, including Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), jumped much more than 10% during that time.
NXP Semiconductors (NASDAQ:NXPI) has performed only in line with the SMH index. That’s despite the fact that, as I’ve written in past columns, NXP is highly leveraged to two sectors — industrial and automotive, performing much better than the consumer electronics sector. Consumer-electronics makers buy the majority of many other semiconductors’ chips.
Also noteworthy is that, between March 28 and the morning of March 30, NXPI stock gained about 10% before pulling back about 1.5% on the afternoon of March 30. That small retreat could very well be a brief pause before the shares surge higher again.
Despite its recent gains, NXPI is still trading at a very attractive forward price-earnings ratio of 14.6x, with a significant dividend yield of 2.3%.
ChargePoint (NYSE:CHPT) sells the hardware and software components of public EV chargers. It also services those chargers.
EVgo, which is one of the largest owners and operators of fast EV chargers in North America., recently reported much better-than-expected fourth-quarter financial results and provided very good 2023 guidance. As a result, EVGO stock soared over 20% on March 30.
EVgo’s strong results and positive guidance bode very well for ChargePoint, yet CHPT stock climbed only 1% on March 30. As more investors internalize the idea that EV chargers will become a huge business due to EV proliferation, CHPT stock should, at the very least, approach its February high of $13.35.
Another important point is that ChargePoint, similarly to NXPI stock, rallied from March 28 to the morning of March 30 before pulling back on the afternoon of March 30. The latter move could represent a brief pullback that precedes a major rally by the shares.
Importantly, CHPT expects to generate positive cash flow by the end of fiscal 2024, giving investors enough confidence in its financial outlook and solvency to buy the shares. That makes it among the top potential breakout stocks.
Illumina (NASDAQ:ILMN) manufactures and markets DNA-sequencing tools to analyze DNA. A legendary investor, Carl Icahn, has obtained 1.4% of ILMN stock. Even though Icahn is pushing the company to make specific changes that it’s resisting, the fact that he bought a sizeable share shows that he is at least somewhat upbeat about its business. Icahn has launched a proxy battle with ILMN, trying to convince Illumina’s shareholders to elect three of his representatives to the company’s board.
Moreover, the shares of the companies with which Icahn launches proxy battles tend to climb greatly, but ILMN stock has only risen about 15% since the multibillionaire investor began his public campaign against the firm.
Also importantly, Icahn is trying to push Illumina to spin off the shares of a company called Grail, which Illumina has acquired, to the owners of ILMN stock.
Grail is the leader in the critical field of detecting cancer using blood, as its test “can detect over 50 types of cancer.” But, according to Icahn, Grail is costing Illumina over $800 million annually.
So if Icahn does get Illumina to spin off Grail to its shareholders, ILMN stock will surge due to the company’s reduced costs, and the stock’s owners will get shares of Grail, which should be quite valuable indeed, given the tremendous potential of its test.
After EV stocks fell sharply for many months, they have started to make a comeback in recent weeks. There are several factors behind the rebound.
Among these is the Street’s realization that the sector’s price cuts at the end of 2022 and the beginning of this year were primarily a response to lower input costs and an effort to become eligible for tax credits rather than a response to demand challenges.
During March 26, many EV startups outperformed the stock market, largely due to a report that EV startup Rivian (NASDAQ:RIVN) delivered more vehicles than expected in the first quarter.
Specifically, Cox Automotive, citing “state registration data,” reported that the startup had delivered 8,145 EVs this quarter, way above analysts’ average estimate of 7,167 EVs.
Another positive development for Rivian and RIVN stock is the fact that more Ford (NYSE:F) F150 Lightnings than Rivian’s consumer EVs are being sold as used vehicles. Generally regarded as very popular, the F150 Lightning is seen as a direct competitor of Rivian’s consumer EVs. That may indicate that consumers’ demand for new Rivians is strong, while few consumers who purchased the company’s EVs want to give them up.
Also, Amazon (NASDAQ:AMZN) reported on March 30 that it utilizes over 3,000 of Rivian’s delivery vehicles, up from 1,000 in November. That data indicates that the delivery vehicles are performing well and pleasing Amazon, boding well for Rivian’s outlook.
In the wake of Cox Automotive’s report, RIVN stock climbed about 12% from the market opening on March 29 to the market closing on March 30. The shares, however, are still down 71% from their 52-week high and should continue to climb going forward as more positive data about this superstar EV maker emerge. That makes it among the top potential breakout stocks.
As I reported in a recent column, “over 25 automakers use Mobileye’s products, enabling vehicles to avoid obstacles on their own,” while its revenue soared 59% year-over-year last quarter.
Like CHPT, Mobileye’s (NASDAQ:MBLY) shares climbed sharply on March 28 and March 29 before pulling back on March 30. The small decline leaves MBLY stock well-positioned to climb significantly in the next week or two.
Calling Mobileye “the dominant supplier of camera-based technologies used in automotive driver assistance systems,” Investor’s Business Daily in January noted that Mobileye is seeking to also become the leader in providing systems that allow vehicles to drive autonomously.
The company has gotten off to a good start in that area. It has sold its SuperVision system to Geely (OTCMKTS:GELYF), a major Chinese automaker, and, at the beginning of this year, made its first SuperVision deal with a company outside of the Asian country. Mobileye calls SuperVision its “most advanced driver-assist system on the market, providing “hands-off” navigation capabilities of an autonomous vehicle.”
In a note to investors on January 27, investment bank Needham wrote that the “demand for SuperVision proliferated.,” according to Yahoo Finance, the analyst raised its price target on the shares to $45 from $43.
As the Street realizes that MBLY is the leader in providing ADAS systems and is becoming a leader in enabling self-driving., MBLY stock will likely climb much higher in the coming weeks and months.
Skyline Champion (SKY)
Skyline Champion (NYSE:SKY) focuses on “producing and selling factory-built housing in North America and the United States.” With interest rates stabilizing and the supply of housing, for several reasons, unable to keep up with demand in the U.S., the housing sector is making a comeback in America. Also noteworthy is that, despite the housing sector’s challenges, average home prices have continued to climb nationally.
Moreover, Skyline’s concentration on factory-built housing likely has helped it keep its cost of goods sold relatively low, allowing its profits to continue to climb. In 2022, its operating income came in at $565.5 million, up from $332.9 million in 2021.
SKY stock has jumped 44% so far in 2023 and 9% over the last five days. Nonetheless, Investor’s Business Daily gives the stock an Accumulation/Distribution Grade of A-, indicating that the “big money” has accumulated the company’s shares over the last 13 weeks.
That metric, combined with the housing market’s nascent comeback, has me convinced that SKY’s rally is just getting started. That makes it among the top potential breakout stocks in my book.
Enphase Energy (ENPH)
Enphase (NASDAQ:ENPH) develops inverters used to convert energy obtained by solar panels into electricity. In recent weeks, ENPH stock has languished. Through March 30, the shares were down 5.5% over the preceding month and had slumped 22.5% in the first three months of the year.
However, the shares had perked up a bit in the previous five trading days, climbing 4.7%. Moreover, the market is getting excited about solar energy again.
That’s because, on March 30, the EU announced “a preliminary deal” to seek to raise the amount of energy it produces from renewables to 42.5% in 2030. The previous target had been 32%.
Many solar stocks climbed on March 30 in the wake of the news. ENPH stock rose only 0.65% on March 30, but as the Street gets more excited about the whole sector, I believe ENPH will begin to break out.
Also positive for ENPH is that, on March 22, investment bank Susquehanna upgraded its rating on the name to “positive” from “neutral,” citing valuation after the shares’ steep decline, Enphase’s positive outlook in Europe, and its generally upbeat “growth potential,” The Fly reported.
As of the date of publication, Larry Ramer owned shares of EVGO, ILMN, and RIVN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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