Although strong corporate earnings can support the market’s artificial intelligence-powered surge, sentiment is not consistently optimistic across all sectors and indexes, making undiscovered stocks the way to go at a time of mixed returns.
Morgan Stanley believes economic growth will stall, which might lower stock market gains, but Goldman Sachs is forecasting an S&P 500 target of 5,100 on assumptions of a dovish Federal Reserve and cooling inflation.
Due to continuing inflation, the Fed is delaying the three-rate reduction this year. The latest January-March GDP data shows prices rising 3.3% annually, up from 1.8% in the fourth quarter of 2023 and the highest rate in a year. After two quarters of 2% core inflation, it rose 3.6%.
In the middle of all this, let’s look at three undiscovered stocks with double-digit upside, including an airline benefiting from a boom in international travel, a well-known entertainment company growing through smart acquisitions, and a prominent digital photo distributor.
Caesars Entertainment (CZR)
Caesars Entertainment (NASDAQ:CZR) is a company on the move when discussing undiscovered stocks. In May, it entered Nebraska with a new location in Columbus. CZR also invested $250 million in a casino resort in Danville, Virginia, after the venue made more than $222 million in gross gaming revenue in its first eleven months.
In addition, Caesars Entertainment is updating the Caesars Palace Online Casino mobile app and is now the first North Carolina sportsbook to provide mobile sports wagering on Eastern Band of Cherokee Indians Tribal Lands and Harrah’s Cherokee Casino.
However, because of a weaker-than-expected hold in Las Vegas and weather-related issues that hurt Q1 revenues, CZR stock is selling at a 73% discount to its five-year average.
Although net losses increased, Caesars Digital performed better than expected, turning a loss into a small Adjusted EBITDA of $5 million despite lower-than-expected holds from events like the Super Bowl and March Madness.
The entertainment giant owes $12.4 billion and had $726 million in cash on hand as of March, but paring down debts is a big part of its financial strategy.
CZR has high forward occupancy and ADRs, with Las Vegas a star performer. It’s bullish about its business in 2024 and beyond, as are analysts, with a ‘strong buy’ consensus and a substantial upside of about 69%.
Delta Air Lines (DAL)
Delta Air Lines (NYSE:DAL) is benefitting from a resurgence in global travel demand, but remains at a 73% discount to its five-year average, and with the IATA predicting 103% more passengers in 2024 than before COVID-19, the fun is just beginning.
DAL posted a record number of on-time landings, a decline in adjusted net debt, and solid operational cash flow in the March quarter. Operating revenue reached $13.7 billion, the higher end of its guidance, an 8% rise from last year.
The legacy carrier generated $1.4 billion in free cash flow and $2.5 billion in adjusted operating cash flow. Delta paid back roughly $1 billion in March and concluded the quarter with $19.4 billion in debt.
DAL anticipates operating profit in the mid-teens and record revenues for the June quarter, affirmed by expectations of $6 to $7 EPS and $3 to $4 billion in free cash flow in 2024. Furthermore, to improve travelers’ experiences, the airline is improving customer loyalty programs and reinstating co-branded credit cards with new features.
As Delta gears up for a busy summer, it’s also getting plenty of analyst love, projecting an average price target of $60, with a potential upside of about 20% for this quality pick among undiscovered stocks.
Shutterstock (SSTK)
Shutterstock (NYSE:SSTK) is coming off several key acquisitions aimed at bolstering its product offerings, such as GIPHY, the biggest GIF library in the world, and 3D content provider TurboSquid, which means it now has more 3D models available.
Splash News, a celebrity news network, is another important purchase, as is the $245 million acquisition of Envato that will allow Shutterstock to provide more resources for companies and digital marketers.
In addition, Shutterstock and OpenAI are partners in a new six-year deal to provide high-quality training data for AI models. Shutterstock is also adding OpenAI’s DALL-E 2 to its AI services, part of a larger push toward modernizing content production tools.
However, due to one-time charges from the Giphy transaction, Shutterstock’s 2024 first-quarter adjusted EBITDA margins fell modestly, jolting the markets, but as a sign of management confidence, Shutterstock’s CFO, Jarrod Yahes, recently invested $199,822 in the company’s shares; the 12-month target of $65 points to a potential 59% gain.
Forecasts for FY’24 indicate EPS will range between $4.18 and $4.32, and sales will range from $923 million to $936 million; numbers are ahead of analyst projections.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
