Let's talk about growth stocks. These are stocks that have seen strong and sustained price gains, sometimes ranging in triple-digit gains over the course of a year or more. In short, these are stocks that investors say: "If only I had bought back then…!"
There is no point in dwelling on the past. A savvy investor looking to build a growth-oriented portfolio will profile a solid growth stock and strive to match it. The factors to look for: that strong valuation we mentioned, solid upside potential and a prospect of further growth.
Wall Street analyst corps approval can also be added to the list. The markets offer plenty of candidates that fit that profile, and we used the Investing Insights platform to find some of them. These are "Perfect 10" stocks, each fluctuating at or near an annual peak – and with potential to hit new highs. Let's take a closer look.
Inovalon (INOV)
First on the list, Inovalon (NASDAQ:), is a company with one leg in the technology sector and one leg in the healthcare sector. The company provides a cloud-based software platform that provides solutions – in the form of data tools – for healthcare providers who want to analyze and use aggregated information about patients, lab work, finance and pharmacy services. Data analytics is a rapidly growing field and its application in healthcare shows tremendous potential. And Inovalon has recorded stock growth of over 79% in the past 12 months.
That growth rests on a solid foundation. Inovalon's software platforms have found customers across the healthcare spectrum. The company prides itself on its customer base that includes the 25 largest health insurance plans in the US, the 25 largest pharmaceutical companies worldwide, and 24 of the 25 largest healthcare providers in the US.
In financial terms, Inovalon saw a 15% year-over-year revenue increase, to $177.2 million, in 1Q21. While this result was slightly lower than the previous quarter, it was still the second-highest in the past two years and also exceeded Wall Street's forecast at $3.11 million. In terms of earnings, the company reported earnings per share of 6 cents, up from a loss of 1 cent in the same quarter last year, and 2 cents higher than estimates.
Inovalon's strong performance has caught the eye of Baird analyst Vikram Kesavabhotla, who began his coverage of the stock with an Outperform rating (i.e. Buy) and a price target of $41, which represents a 25% upside potential for suggests one year.
Kesavabhotla supports his position, writing: "INOV is generating impressive new business wins, all stemming from the underlying value of its data assets. We expect this momentum to continue and consensus estimates to revise higher. We also believe that the characteristics of INOV's subscription business will grow over time and drive valuation expansion…we see positive risk/return over the next 12 months.”
In general, INOV stocks have a Strong Buy rating from the analyst consensus, based on 6 recent ratings, including 5 Buys and 1 Hold. The shares are selling for $32.80 and their average price target of $36.17 implies room or a 12 month increase of 10%. (See Inovalon's stock analysis)
Verastem (VSTM)
Let's stick to the health sector for the second share on our list, but shift our focus to the biotechnology segment. Verastem (NASDAQ:) is a development-stage biopharmaceutical company with a focus on creating novel cancer treatments. The company's pipeline includes new small-molecule drugs designed to inhibit signaling pathways that promote the growth of cancer cells and tumors. The two main research tracks of Verastem are RAF/MEK inhibition and FAK (focal adhesion kinase) inhibition.
Verastem's two drug candidates are VS-6766, the RAF/MEK inhibitor, and defactinib, the FAK inhibitor. Both are being studied individually and in combination for a variety of cancers, including low-grade serous ovarian cancer (LGSOC), mesothelioma and colorectal cancer. Verastem is developing VS-6766 under a license agreement with Chugai Pharmaceuticals.
In recent updates to the company's development program, Verastem reported that the Phase 1/2 FRAME study of VS-6766 in combination with defactinib, treating patients with recurrent LGSOC, showed an overall response rate of 70% in 21 patients, with reversible side effects. VS-6766, in combination with defactinib, has received Breakthrough Therapy Designation from the FDA, for the treatment of patients with recurrent low-grade serous ovarian cancer (LGSOC) and the Phase 2 study, RAMP 201, investigating only VS-6766 and along with defactinib, is now underway. Results of these studies are expected in 2H21 and 1H22, respectively.
Defactinib, Verastem's second drug candidate, has orphaned drug designation from the FDA for the treatment of ovarian mesothelioma cancers. The drug candidate is being evaluated as a combination therapy against a number of solid tumors.
An active pipeline of promising drug candidates is an important part of a biotech company's investment profile, and Verastem has attracted significant investor attention over the past year. This is evident from the 12-month equity gain of 157%. Year-to-date, the share has increased by 111%.
On the financial side, Verastem reported 1Q21 total expenses of $15.1 million. This total includes $6.2 million in general and administrative expenses, along with $8.9 million in R&D costs. These costs are balanced against $127.1 million in available cash, providing the company with sufficient funding for the next 8 quarters.
In this share's coverage for BTIG, 5-star analyst Robert Hazlett writes: "We believe that Verastem has granted Verastem's recent license of Chugai's RAF/MEK inhibitor (no VS-6766), with favorable deal terms (double digit royalty), to be developed with Defactinib, the focal adhesion kinase (FAK) inhibitor, for KRAS mutant solid tumors, appears encouraging based on early data.The combination strategy is based on single agent activity for both compounds in KRAS mutant tumors, along with preclinical data suggesting that FAK signaling acts as an escape mechanism for MEK blockade, and promising synergistic activity seen with the molecules, especially in those with KRAS mutant tumors.We expect Verastem to actively add additional rational combinations will be considered for KRAS mutant driven tumors.”
Hazlett rates VSTM stocks as a buy, and his $8 price target implies a 78% gain over the next year.
Although this stock has only 2 recent analyst reviews, both are to buy, making the moderate buy consensus unanimous. VSTM's shares are selling for $4.50 and have an average price target of $6, giving the stock a 33% upside potential. (See Verastem's stock analysis)
Global Ship Lease, Inc. (GSL)
For the last stock on our list, we switch and switch to the shipping container trade. This is an important part of the global trade network, transporting all kinds of goods – from small personal shipments to multi-ton shipments of grain to shipments of cheap toys from China – around the world. Global Ship Lease (NYSE:) is an independent owner of container ships, with a diversified fleet in the small to medium range.
GSL's fleet includes 62 container ships in service or on order, ranging in size from 2,200 to 11,000 TEU – or twenty foot equivalent units, the industry standard for assessing a ship's carrying capacity. Operating a mix of vessel sizes gives GSL flexibility in supplying carriers across the world's trade routes. The company has contracts to purchase additional vessels, including a 6,000 TEU carrier, and 12 additional vessels – announced this month – with an average capacity of 3,000 TEU. In total, when fully delivered, the company's fleet will have a total capacity of more than 322,000 TEU and will include 9 post-Panamax vessels with a more modern fuel-efficient design.
The economic disruptions of the COVID pandemic crisis have caused massive disruptions and delays in maritime trade routes, particularly on the US Pacific coast and in southern China. One result is that shipping rates have risen rapidly – and GSL's stock has been rising in recent months. Shares are up 345% since last year around this time.
The company posted 1Q21 revenue of $73 million, in line with revenue results for the past 4 quarters. The company announced a dividend of 25 cents per common share in the quarter, its first dividend payment since 2015. At the current rate, this annualized dividend will come in at $1 per common share, delivering a robust return of 5%.
Liam Burke, 5 star rated by TipRanks, covers GSL for B. Riley Securities and sees the purchase of new ships as a key point here. He writes: “The acquisition expands GSL's fleet… and would make the company the eighth largest non-operational container vessel owner in terms of TEU capacity. The announcement is consistent with the company's increasing value creation by adding vessels to its fleet with existing charters. We expect an additional benefit for the vessel contribution acquired, as the vessels are re-chartered at higher rates and longer maturities. We would expect an additional adjusted EBITDA contribution from six vessels re-chartered in 2023. "
Burke assesses GSL as a buy, and with a view to purchasing the new vessel, raises its target price from $22 to $25, implying a 23% increase for the stock.
Again, we're looking at a stock with a unanimously moderate buying consensus, based on 2 recent reviews. GSL's stock has an average price target of $24.50, suggesting there is room for a 20% increase from its current trading price of $20.38. (See GSL stock analysis)
For more stock trading ideas at attractive valuations, visit Investing Insights.
