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Investors looking for momentum stocks should look at Barchart.com’s Top 100 stocks to buy.
Why?
The list comprises stocks with a high weighted alpha -- the amount a stock has risen or fallen over the past year with increased weight placed on recent activity -- and is likely to maintain their momentum in the weeks ahead.
As the saying goes, “An object in motion tends to stay in motion.” The same applies to stocks.
Of the top 100, 44 have gained more than 100% year-to-date. Of those, 14 have a share price below $10. Three are worth owning if you’re an aggressive investor and used to taking risks.
Rockwell Medical
Rockwell Medical (RMTI) manufactures and sells hemodialysis products to dialysis providers worldwide. The Michigan-based healthcare company currently trades for around $5.82. Its shares are up 483.25% year-to-date, with 39% of these gains in the past month.
Just yesterday, the company announced that it would acquire Evoqua Water Technologies (AQUA) hemodialysis concentrates business for $11 million in cash upfront and two additional payments of $2.5 million on the 12-month and 24-month anniversaries of the deal closing.
Evoqua’s hemodialysis concentrates business is profitable, generating $3.3 million in EBITDA from $18 million in annual revenue. As a result of the acquisition, Rockwell raised its 2023 revenue guidance to $84.0 million at the midpoint of its estimate.
“Evoqua's hemodialysis concentrates business is profitable, complementary to Rockwell's business, and immediately accretive to our top and bottom line,” stated Rockwell CEO Mark Strobeck.
“Additionally, this transaction enhances Rockwell's presence in the hemodialysis marketplace and offers us technological solutions that will enable us to automate our processes and add significant capacity to our production line.”
The acquisition is good news for shareholders anxiously waiting for the company to become profitable on a GAAP basis. In the first quarter of 2023, it had an operating loss of $1.43 million, 78.5% lower than a year earlier, on $19.7 million in revenue.
Based on its current market cap of $81 million, it is trading at less than 1x sales.
Carrols Restaurant Group
Carrols Restaurant Group (TAST) is the largest Burger King franchisee in the U.S., with over 1,000 locations in 23 states. In addition to Burger King, it has 65 Popeyes locations in seven states.
The company’s stock is up 298.53% in 2023. However, it’s off 7.5% in the past month, and more importantly, it’s down nearly 63% over the past five years.
So, why buy?
It trades at 0.16x sales. As recently as 2016, it sold for 0.85x sales. Based on its trailing 12-month revenue of $1.78 billion and a price-to-sales ratio of 0.85x, the restaurant operator’s market cap would be $1.51 billion, 5x its current market cap.
Also, I'd like to point out that Restaurant Brands International (QSR), the franchisor of both Burger King and Popeyes, has a P/S ratio of 5.16x, suggesting a disconnect between the two businesses.
Now, Restaurant Brands runs an asset-light business model, so its profitability relative to Carrols should be higher.
However, it’s worth noting that the four analysts covering its stock all rate it a Buy, with an average target price of $6.38, 17% higher than where it’s currently trading.
In addition, both Restaurant Brands -- it owns 14.8% of TAST stock -- and Cambridge Franchise Holdings -- it owns 23.3%, making it the largest shareholder -- have a vested interest in seeing the current turnaround through to completion.
That puts a floor on its share price.
Daktronics
This final pick is an “old school” type of business. If you go to your local high school’s weekly football games, you’ll likely see a Daktronics (DAKT) scoreboard keeping a tally of the game’s action.
The company reported its Q4 2023 and full-year results before the opening bell Wednesday morning. Sales and earnings were higher across the board, sending its shares up by more than 30% on the day. DAKT stock is now up 187.23% in 2023.
Daktronics' 2023 revenue was a record $754.2 million, 23.4% higher than a year earlier. Its gross profit margin in 2023 was 20.1%, 100 basis points higher than in 2022. As a result, it generated an adjusted operating profit of $26.0 million, nearly 7x its operating profit a year ago. It finished the year with a backlog of $401 million.
“Daktronics has emerged from the challenges of the last three years strategically renewed, operationally focused, and financially sound. Our teams came together to take decisive and deliberate actions to improve our customers' experience while increasing our profitability and working capital levels through the past's dynamic and challenging operating environment,” said CEO Reece Kurtenbach.
DAKT stock once traded near $40 (December 2006). With a lot of hard work, and a little luck from the stock market gods, it could get back there before too long.
In fiscal 2006 (April year-end), Daktronics had $309.4 million in revenue, a 30.4% gross profit, and an operating profit of $31.8 million. There’s no question that Daktronics' business efficiency must continue to improve before it deserves a similar valuation.
Even if it only gets halfway there, $15 doesn’t seem out of the realm of possibility by the end of 2024.
If you’re aggressive, I like Daktronics’ possibilities.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
