With stocks up 200%, you face a dilemma. While you don’t want to fight momentum, you also don’t want to buy into excessive exuberance and jump into a stock at its top, forced to hold until break-even or sell for a loss down the road.
These three companies represent solid picks among the handful of stocks up 200% in 2024. One has a long and fruitful future, buffeted by ongoing enthusiasm for machine learning and advanced computing. The other two represent equity arbitrage plays, and while they may not be 10x stocks any longer, they still offer some upside to investors waiting for an M&A deal to close.
Super Micro Computer Inc (SMCI)
Super Micro Computer (NASDAQ:SMCI) tops the list of 2024 stocks up 200% as shares surged 240% since January. Last week, shares took a quick dip, falling about 26% before climbing up to just below $1,000 per share. The “flash crash” shook loose some paper-handed retail traders betting on SMCI’s prospects as a meme stock, but the company’s 2024 potential doesn’t end there.
SMCI is riding high, in part, based on its role within the burgeoning artificial intelligence (AI) sector. The company provides server-sized computing solutions and boasts big-name clients, including Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). At its core, SMCI embodies my thesis that future semiconductor and AI investment opportunities lie more in upstream suppliers selling “picks and shovels” rather than the end users facing stiff intra-sector competition.
The difference is particularly stark when you look at the company’s price-to-earnings ratio, which sits at “just” 62x compared to Nvidia’s 85x. While they aren’t perfect parallels, it shows that (despite the 200% surge) SMCI is valued slightly less at today’s pricing than one of its core clients that captured so much investor attention over the past year.
Ambrx Biopharma (AMAM)
Ambrx Biopharma (NASDAQ:AMAM) stands out from other stocks, up 200% in that most of its per-share pricing surge is due to an imminent buyout from Johnson & Johnson (NYSE:JNJ). This makes AMAM an equity arbitrage play, and though there’s slim upside remaining, there’s a (nearly) guaranteed return on the horizon when the deal closes. JNJ agreed to buy AMAM for $2 billion, or $28 per share. Today, shares trade just below the sales price at $27.93. Once the deal closes, existing shareholders will get $29 per share held, so if you buy today, you’re locking in some gains.
The trick to equity arbitrage of this nature is two-fold: how likely the deal is to close with minimal disruption and how long it will take. We only have to look at the Spirit Airlines (NYSE:SAVE) debacle to prove the first point. Assuming the AMAM deal is all but guaranteed, you’ll have to consider what investment alternatives match the same gains over a comparable timeframe to answer the second question. For example, if the deal doesn’t close until the end of the year, you would have been better off buying or laddering Treasury Bills rather than locking your capital up in a dragged-out deal. In this particular case, the mandatory waiting period for the deal expired early this week—meaning a merger is all but imminent at this point.
Kaman (KAMN)
Kaman (NYSE:KAMN) is another one of 2024’s stocks up 200% and, like AMAM, an equity arbitrage play. Unlike AMAM, though, KAMN is due to merge with private equity investment firm Arcline Investment Management. Arcline is buying KAMN, a small-cap aerospace firm, for $46 per share, offering investors a 1% premium over current per-share pricing. The deal should close sometime in 2024’s first half, but, in the meantime, KAMN offers investors plenty to be happy about.
The company just announced its newest dividend, $0.20, payable April 11th, with an ex-dividend date of March 18th. That’s a yield just below 2%, which, combined with the equity arbitrage opportunity, offers investors an “easy” 3% gain for holding shares until the deal closes fully. In this case, barring any extreme regulatory involvement, the deal’s economics make it a sure bet to close.
Specifically, the deal includes a $46 million termination clause, nearly half the company’s pre-announcement market cap. That’s a big hit for Arcline if they’re forced to pay out, so management is likely to do everything within their power to bring the deal to an end quickly and keep all stakeholders happy.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
