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In mid-2013, America moved into a “Goldilocks” economy phase, a time when growth finally became not too hot and not too cold. Unemployment from the 2007-08 financial crisis was receding, and the prior year’s corporate cost cutting was submitting to a more sustainable way forward. Perhaps most importantly, consumers were beginning to regain confidence as the financial crisis faded into the rearview mirror.
“We have all this hot air in Washington,” David Blitzer, S&P Dow Jones Indices chairman, said in a CNBC interview at the time. “But the rest of the economy is growing reasonably well… And that’s probably what’s behind the stock market’s good track record.”
In other words, things were good enough.
2024 is quickly becoming another “Goldilocks” period for the economy. On Thursday, CPI data showed that inflation decelerated to 3%, from 3.3% a month earlier. Analysts expect GDP to rise at 2% this year, up from previous estimates of 1.5%. And though industrial output is slightly weaker than expected, it’s easy to argue that we’re finally in another period when the economy is not too hot and not too cold.
That’s great news because “Goldilocks” moments are phenomenal times for buying moonshot stocks. Shares of fast-growing companies like Meta Platforms (NASDAQ:META), Tesla (NASDAQ:TSLA), and Netflix (NASDAQ:NFLX) would more than double in 2013 – the last time we saw this “Goldilocks” phenomenon. Smaller firms like Canadian Solar (NASDAQ:CSIQ) rose as much as 750%.
That’s because most moonshots need strong economies and permissive capital markets to survive. It’s no surprise that the 2012-14 period saw a bump in initial public offerings (IPOs) and a rash of venture capital (VC) activity. When you have big ideas, it helps to have big money to grow them into even bigger businesses. And the best of these startups can make early investors an enormous amount of profit.
This week, our writers at InvestorPlace.com – our free news and analysis site – examine three of these moonshot stocks that they believe are at the cusp of the sorts of gains that could turn $5,000 into $25,000. Though some of these moonshots naturally might not survive (they are moonshots), the five-baggers that do could more than offset these losses.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) has long been a risky bet on the future of the renewable energy source known as green hydrogen. The company is unprofitable; in 2023 it burned through $1.8 billion of cash. It’s also running out of time. Its most recent balance sheet shows just $173 million of cash and short-term investments on its books.
But Plug Power also has enormous dreams to become America’s first one-stop shop for green hydrogen… and it now has significant financial backing that extends beyond its balance sheets. In March, it signed an agreement with investment bank B. Riley to raise more equity. And in May, the firm received a $1.66 billion loan from the U.S. Department of Energy to help build out six “hydrogen hubs” across the country.
This week at InvestorPlace.com, Larry Ramer writes how these efforts are laying the groundwork to become very profitable in the long term:
Deployments of the company’s electrolyzers are rapidly ramping up. As a result, I believe that this business will generate huge profits over the long-term as its revenue surges and its costs drop.
… Moreover, Plug is likely to benefit from Nikola’s success, since the two firms announced a partnership in December 2022. With Plug becoming a leader in the green hydrogen boom, I believe that it is one of the best hydrogen fuel stocks to buy.
New InvestorPlace.com contributor Andy Kim also notes that Plug already has a strong first-mover advantage, making it one of the smartest hydrogen stocks to buy with $100:
Plug Power is essentially the pioneer in bringing a commercialized hydrogen market in the country. Furthermore, the company has deployed more than 69,000 fuel cell systems and over 250 fueling stations. This makes Plug Power the company with the largest fuel cell infrastructure while it is also the world’s largest buyer of liquid hydrogen.
That makes Plug Power either a company that will be worth billions in the future… or $0 if things don’t work out. And our Goldilocks economy now means the prospect of a 5X return… or even 20X… now outweighs the risk of total loss. Plug Power will need a lot of capital to build its green hydrogen infrastructure, and today’s economy is making it far easier to raise the cash.
OppFi (OPFI)
OppFi (NYSE:OPFI) is a fintech firm that issues loans to low-credit consumers through community banks.
It’s a surprisingly profitable business. Since 2018, the firm has faced only one year of operating losses. As Yiannis Zourmpanos writes this week at InvestorPlace.com, numbers are still pointing in the right direction:
The company demonstrated strong profitability metrics during Q1 2024. OppFi’s Net income increased substantially by 157.8% year-over-year (YoY) to $10.1 million. Similarly, its adjusted net income grew by 127.8% annually to $8.8 million. This significant improvement in profitability points to effective cost management and operational edge despite a slight increase in total expenses. Synergistically, total expenses decreased as a percentage of top-line by 2.7% to 40.6% (excluding one-time expenses and add-backs), contributing to enhanced profitability.
That stands in stark contrast with other fintech lending firms. LendingClub (NYSE:LC) has lost money in 12 of the past 16 years, while privately held Prosper Marketplace has done the same in nine of the past 11 years.
That makes OppFi a potential five-bagger hiding in plain sight. The company has managed to learn enough about its customers to consistently write profitable loans, and demand for this service will only grow as rival lenders struggle to make money. Mild economic growth will also keep default rates lower than average, boosting OppFi’s total profitability.
OppFi also trades at a significant discount, giving it a 5x upside. Markets currently value the stock at under 7x earnings, and analysts expect profits to grow 18% this year and 7% the next. This gives shares a 3x-4x upside on re-rating alone. The high likelihood of rising earnings (from low default rates) increases the upside to 5x to 10x.
Of course, as a moonshot, OppFi comes with significant risks.
The company specializes in high-interest loans, charging 155% APRs on average to low-credit consumers. Net charge-off rates (loans expected to be written off) also sit at 47.9% of revenue – a figure 10 times higher than usually seen at established credit card firms.
Still, alternative lenders have long been a source of strong potential returns. Green Dot (NYSE:GDOT), a firm that issues debit cards for Americans without bank accounts, saw shares rise fivefold in the mid-2010s during the last “Goldilocks” period. And OppFi could do the same this cycle.
Open Text (OTEX)
Ian Bezek writes this week at InvestorPlace.com about how shares of Open Text (NASDAQ:OTEX) are at shockingly low valuations. The Canadian-based software rollup trades at 7.4 times earnings, even though analysts expect revenues to rise 25% this year and for earnings to surge 27%.
Investors have assigned OTEX stock a low valuation, with shares currently going for just 8 times forward earnings. Some discount makes sense as Open Text is a complex firm and many of its software tools are legacy rather than cutting-edge products. Regardless, 8 times forward earnings is an awfully low price, and shares seem set for a solid recovery after their recent 30% pullback.
The company also has a good history of profitable acquisitions. Return on capital invested (ROIC) should hit 17% this year and rise to 25% by 2026, according to analyst estimates. And revenue gains are being driven by significant secular tailwinds in its core markets, which includes cloud services, customer support, and software licensing. As CEO Mark Barrenechea said in his third-quarter earnings call in May:
Our strategy to accelerate cloud growth is working. We’ve increased our R&D investment to an annualized $900 million or 16% of fiscal ’24 revenue. This helped drive Enterprise Cloud bookings growth of 63% in Q2 and 53% in Q3. We’ve increased our F ’24 Enterprise Cloud bookings targets to 33% to 38% and we’re confidently projecting 20% plus cloud bookings growth in both F’25 and beyond.
Together, that means Open Text could rise threefold on multiples expansion alone. According to a three-stage discounted cash flow (DCF) model, shares are worth roughly $100 without additional acquisitions. Additional bolt-ons will increase this value even further to the 5x to 8x return range, especially if mild economic growth continues and keeps capital flowing.
The AI Moonshot Game
Two Sundays ago, I wrote here about Stem (NYSE:STEM), a stock that could rise 20x in the next decade. People have begun to worry about the power consumption of AI, and Stem is finding itself at the right place, at the right time. Shares are already up double digits since that note.
The AI story is also powering other firms to prominence. In a special report for his flagship newsletter, Eric Fry notes how artificial intelligence is creating a new cohort of stocks that could surge 1,000% or more (go here to learn how to get that report). These companies are riding a once-in-a-generation megatrend and are succeeding at changing the world.
The best part is that we’re still in the early innings of this AI surge. Imagine a world where artificial intelligence can be trusted to drive cars… report the news… or even perform brain surgery. And now think how far current AI models still need to go to create that reality.
That’s why, in the coming weeks, you can expect to hear more from Eric – together with Louis Navellier and Luke Lango as well – about how AI will create a whole new world of moonshot opportunities. We’re in the perfect “Goldilocks” economy to fund these projects. And now that the technology is starting to become ready for prime time, we can expect some incredible disruptions to come.
Watch for a special announcement on that event soon. In fact, I’ve spent the past couple of months working hard, helping Eric, Luke, and Louis put together that project… and I’ll be taking the next two Sundays off from the Digest to concentrate on finishing that up.
On the date of publication, Thomas Yeung 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
