Just a handful of stocks are responsible for the stock market’s rally this year. The so-called Magnificent 7 stocks are responsible for 73% of the S&P 500 gains this year. If you eliminate the performance of the top 10 stocks in the index, the rest are performing at break-even.
But that’s what can happen when investors pile into high-profile stocks Wall Street loves. There’s a big risk if one or more of those select companies stumbles.
Looking for under-the-radar companies the crowd hasn’t latched onto yet just might serve you better. It was one of the areas investing legend Peter Lynch sought out over his illustrious career.
One of the greatest money managers of all time, Lynch took Fidelity Magellan from $20 million in assets under management (AUM) to $14 billion AUM in 13 years. He also averaged 29% annual returns over that period. So, if you can find out-of-the-way stocks with which Wall Street happens to agree have good prospects for long-term growth, you might just end up with some big winners.
Aptiv (APTV)
Despite being one of the biggest auto parts companies by market cap, Aptiv (NYSE:APTV) still isn’t as well known as some of its smaller brethren. Its profile has risen markedly since partnering with ride-sharing company Lyft (NASDAQ:LYFT) to develop a fleet of self-driving taxis. Customers have taken over 100,000 rides in autonomous vehicles since the partnership launched in 2020.
As connected cars become more commonplace, Aptiv will grow with them. That’s because Aptiv was the connected mobility division of Delphi Automotive, which split in two in 2017. The powertrain business that became Delphi Technologies was subsequently acquired by BorgWarner (NYSE:BWA) three years ago.
Net sales jumped 12% in 2022 to $17.5 billion and are 22% higher over the first six months of 2023. Aptiv’s smart vehicle technology and software capabilities are driving the gains. It resulted in $20 billion worth of new business awards so far this year.
Analysts see Aptiv growing earnings at a 33% compounded annual rate for the next five years, but the stock trades for less than twice its sales. That could be why Wall Street rates the stock as a Buy. With a consensus of $129.95 per share one-year price target, analysts see at least 29% more upside in this stock.
Badger Meter (BMI)
Badger Meter (NYSE:BMI) is a small but growing smart water meter company. Reading the water meter is such a banal task that most homeowners don’t even think about it. Maybe they do once a month when the utility company comes around to take a reading.
The future, though, is in remote, smart meter technology, and Badger hopes to be an industry leader in the conversion.
Badger points out there are more than 50,000 water utilities in the U.S. It estimates approximately 70% of their respective connections have converted to a radio solution. That means no more looking at the spinning dials on your meter. Half of those, however, still utilize automatic meter reading (AMR) technology, requiring a water utility worker to go out and collect the data.
On the other hand, advanced metering infrastructure (AMI) eliminates the need for employees to go door-to-door. The smart meter itself automatically transmits the data to the company, and it can do so more than once a month. That allows the utility to monitor for abnormalities, such as leaks. Badger is well-positioned for the conversion trend to AMI meters.
Most of Badger’s revenue is derived in the U.S., giving it global expansion opportunities ahead, too.
Water stocks possess large growth potential because clean water and wastewater treatment are essential. It’s why I invested in American States Water (NYSE:AWR). The company provides water to homes in 9 states and 11 U.S. military bases. Monitoring the systems through smart meter technology provides investors with a higher growth trajectory than simply buying utility stocks.
Boston Omaha (BOC)
Boston Omaha (NYSE:BOC) is a conglomerate that owns outdoor billboard advertising, an insurance company, broadband services and an asset management business.
If that sounds remotely familiar to Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), there’s a reason. Both are structured in similar ways and pursue similar types of investments. In fact, the founder of Boston Omaha has an investment style similar to Warren Buffett.
That’s not surprising either since one of the chief executive officers (CEO), Alex Rozek, is the grandson of Buffett’s late sister Doris (Rozek’s middle name is Buffett).
Yet I hesitate to call Boston Omaha the next Berkshire or Rosek the next Warren Buffett. Far too often investors have seen self-styled Buffett-like figures fail to live up to the hype. Heck, even purported crypto Ponzi scheme mastermind Sam Bankman-Fried was dubbed “the next Warren Buffett” by Fortune magazine.
Still, Boston Omaha does offer an interesting investment opportunity. Billboard rentals generate the bulk of revenue, some 44%. Broadband services account for another 36%. Revenue increased 10% and 8%, respectively, due to better business conditions for both segments. Plus, the company turned losses into profits last quarter.
The stock is down sharply in 2023, losing 34% of its value, but the real value is in its long-term potential. Wall Street is on board with analysts giving Boston Omaha’s stock a buy rating with near 100% upside over the next 12 months.
On the date of publication, Rich Duprey held a LONG position in AWR stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
