The market has been rallying so far this year, but many investors are—understandably—still cautious.
With that in mind, I wanted to highlight two stocks that have both a bullish outlook from Wall Street’s top analysts, and likely have serious upside potential ahead over the next twelve months.
Here’s what you need to know about these two stocks.
Lumentum (NASDAQ: LITE)
Fiber optic component maker Lumentum (NASDAQ: LITE) may be down nearly -18% over the last year, but don’t count this stock out.
In fact, Wall Street is very upbeat on the stock with fourteen analysts rating LITE a Buy, and two rating it a Strong Buy. Their average price target for LITE is $68.89, suggesting possible upside of 46.92%. Earlier this month, Rosenblatt Securities rated the stock a Buy and set their price target at $80 – nearly 71% higher than Tuesday’s closing price.
The stock took a beating last year after one of its top industrial and consumer customers—widely presumed to be Apple (NASDAQ: AAPL)—requested a material reduction in shipments of laser diodes for 3D sensing technologies.
In other words, the company provides the components used for the front-facing camera, which allows for FaceID and augmented reality, on the new generation of Apple’s iPhone X which has seen lower-than-expected sales since its release.
But Lumentum has clients other than Apple and it is growing at impressive rates. The company has grown its revenues in each of the last four fiscal years, grew revenues by 24.57% in FY18 compared to FY17, and is expected to grow revenues by 29.3% this fiscal year.
Its telecom unit in particular is booming: “Lumentum’s ROADM sales increased 110% y/y and 29% q/q in 2QFY19, and are now likely ~$90mn per quarter,” wrote MKM Partners’ Michael Genovese in a note. “The company is sold out of ROADMs, and is still adding capacity at customers’ request. ROADM demand is also strong in the U.S. and EMEA.”
There’s also hope for its datacom and 3D sensing units. Lumentum is launching new products to continue the growth in its datacom business, and Android could help make up for Apple’s shortfall.
“We believe Lumentum’s 3D sensing business is on track, with potentially more design wins from the Android market in the March quarter,” said Rosenblatt’s Jun Zhang.
Turtle Beach (NASDAQ: HEAR)
Turtle Beach (NASDAQ: HEAR) had one heck of a year last year, with shares ending 2018 up more than 680%.
This niche stock’s fantastic gains were spurred by the sudden emergence and insane popularity of “battle royale” style games, including games like Fortnite, PlayerUnknown’s Battlegrounds, and Activision Blizzard’s (NASDAQ: ATVI) Call of Duty: Black Ops 4 with its battle royale Blackout mode.
With this style of game, player-to-player communication is an essential part of the experience and a high-quality headset with a microphone is necessary. And that’s precisely what Turtle Beach does.
The company is dominating the console video gaming headset market in North America and the U.K. with roughly 50% market share. It is also the only pure-play in the massively in-demand gaming headset space.
“We believe the popularity of Battle Royale video games remains a tailwind for Turtle Beach due to their inherent requirement for team-based communication,” said Oppenheimer’s Andrew Uerkwitz.
But the risk with Turtle Beach is that it’s success right now is directly correlated to the popularity of battle royale-style games – thus if these games lose popularity, sales of the company’s headsets could sink. But these games absolutely dominated in 2018, and one major thing Turtle Beach has going for it is that its market-leading headsets are system agnostic, meaning they can be used for everything from an Xbox One to a tablet.
Not only that, but e-sports—multiplayer video game competitions—is massively gaining in popularity and saw as many viewers last year as the NBA, which could be a long term positive for Turtle Beach. It is also beginning to break into the Chinese market, the world’s largest gaming market, which CEO Juergen Stark says is a “virtually untapped” market for the company.
All five analysts covering the stock rate it a buy. The average twelve-month price target for HEAR is $32, indicating possible upside of 90.59%.
Turtle Beach announced preliminary Q4 results earlier this month, and is expecting to report sales of between $109 million and $111 million – a jump of at least 37% compared to the same quarter in 2017. For the full year, the company is expecting 2018 sales to be between $285 million and $287 million, at least 90% higher than 2017’s sales figures. The company is expected to report final Q4 and full year results in mid-March.