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2018 is more than halfway over. Second quarter earnings have been reported and have sent some of the most talked about stocks surging higher or crashing lower. And earlier this week, the S&P 500 touched an all-time high and the Dow Jones Industrial Average (DJIA) ended Tuesday just 3% below a record high.
Yesterday, the bull market turned 3,453 days old – making this bull run the longest on record by most definitions. Tuesday, it tied the bull market that ran from October 1990 through March 2000.
The S&P 500 is up over 300% since the bottom of the market on March 9, 2009 during the financial crisis, and has gained 7% so far this year despite some capitulation earlier this year.
“Nobody believed in this bull market and they still don’t,” Marc Chaikin, CEO of Chaikin Analytics, said to CNBC. He added that many people “were left so scarred by the crisis they didn’t get on board.”
Chaikin also noted that this bull market could continue, saying “We have an economy that is not overheated and rates are still low. Couple that with the fact that people keep finding reasons to hate this market, that is a perfect storm for more gains.”
But investors shouldn’t be on autopilot, especially considering that valuations are at record highs and this market is getting long in the tooth.
Still, there are gains to be had and analysts say these three stocks have minimum 20% upside potential ahead.
Here’s what you need to know about these three stocks.
Cutera (NASDAQ: CUTR)
Cutera (NASDAQ: CUTR) is a leader in cosmetic surgery technology and, more specifically, makes laser tools for the aesthetics market.
The stock crashed 16% earlier this month after second quarter results and guidance came in below expectations.
Q2 revenue grew by 17% to $42.6 million driven by a 16% jump in sales in the U.S., and 19% growth internationally. However, gross margins sank by 500 basis points to 53%. Management said the decline was due to lower average selling prices on its legacy products and increased sales to distributors.
Earnings per share (EPS) also came in below analysts estimates. Non-GAAP net income was $1.8 million, or $0.12 per share, while Wall Street was expecting EPS of $0.18.
The company also adjusted guidance for the year, with revenue expected to be between $178 million and $181 million, representing year-over-year growth between 18% and 20%. But gross margin was reduced by 400 basis points to between 53% and 54%, though the company does expect gross margin to improve later in the year.
While Cutera’s Q2 results and revised guidance weren’t pretty, the company’s margin issue appears to be fixable, which is a positive. The company is also debt-free and has been continually launching new products that are being widely adopted by the rapidly-growing aesthetics market.
The stock is now trading at a substantial discount and is down 25% year-to-date and nearly 20% just this month alone. But with the stock on sale at $33.60, now could be a good time to buy.
Analysts’ consensus price target for the stock is $50.67 – nearly 51% higher.
FireEye (NASDAQ: FEYE)
On August 2, FireEye (NASDAQ: FEYE) managed to hit expectations in its earnings report but still saw its stock decline 6% in intraday trading.
A few years ago, FireEye was bleeding money after several expensive acquisitions saw its losses growing far faster than its top line gains. The company is still losing piles of money, however, losses are starting to shrink as the company’s new software as a service (SaaS) model is beginning to see a growing number of subscribers, supplying the company with a new and growing stream of recurring revenue.
The cybersecurity firm reported a Q2 loss of $72.86 million on revenue of $202.7 million – up from $191.7 million in the same quarter a year ago. FireEye said it was a break-even quarter on an adjusted basis with reported billings of $196 million, beating analysts’ average expectations of an adjusted loss of $0.01 per share on sales of $201.5 million and billings of $188.3 million.
FireEye’s guidance for Q3 also beat expectations, and the company raised its revenue forecast for the year to between $825 million and $845 million, up from a range of $820 million to $830 million.
Then today, the shares of the data security expert jumped 6% as news broke that the company was instrumental in helping a few big clients—including Google (NASDAQ: GOOGL, GOOG) and Facebook (NASDAQ: FB)—in identifying disinformation campaigns and fake accounts from Iranian and Russian sources. And as hacking and cyberattacks are expected to get worse and become more frequent, FireEye is well-positioned to be at the forefront of the cybersecurity market.
FireEye is up nearly 11% so far this year, but analysts believe it still has room to run. The consensus price target for FEYE is $19.58, suggesting possible upside of 24.23%. However, last month Piper Jaffray Companies upgraded the stock from Neutral to Overweight with a price target of $24 – 52% higher than today’s closing price.
Constellation Brands (NYSE: STZ)
Investing in Constellation Brands (NYSE: STZ) gives investors exposure to the marijuana market but in a more stable and established company whose business isn’t entirely dependent on cannabis.
Last week, news broke that the maker of Corona and Modelo beers had upped its stake in marijuana-grower Canopy Growth Corp (NYSE: CGC) by $4 billion. The partnership is expected to result in cannabis-infused beverages that will likely be available soon in Canada as the country’s nationwide recreational marijuana legalization goes into effect in mid-October.
The investment is the largest ever in the cannabis sector, and Constellation CEO Rob Sands said of the deal, “Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner. Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space. We look forward to supporting Canopy as they tend their recognized global leadership position in the medical and recreational cannabis space.”
However, while the deal sent Canopy Growth’s stock on a tear, investors in Constellation Brands weren’t as optimistic about the move as analysts said that the alcohol company had overpaid for its stake in the cannabis company.
But the opportunity in the cannabis market is massive, with annual sales in Canada alone expected to top $5 billion after legalization goes into effect there in October. And a report by Grand View Research estimated that the global legal marijuana market would reach $146.4 billion by 2025.
The other positive for Constellation is that the stock has climbed more than 800% over the last decade, which is a shocking gain in a low-growth market like alcohol. This surge was largely due to Constellation’s smart investment in acquiring the distribution rights to Modelo beers. Its investment in Canopy Growth and the cannabis market looks to be another such smart investment that could pay off for years to come.
STZ is down 10.36% so far this year and just under 5% this month. However, the average analyst price target for the stock is $245.68, 19.92% higher than Thursday’s closing price.
And just yesterday, the Royal Bank of Canada boosted its price target for the stock to $300 – 47% higher than today’s closing price.