Sleeper stocks to buy – based on Nasdaq.com’s glossary – represent securities that offer significant price appreciation potential once its fundamentals have been recognized. That could cover a lot of enterprises so I decided to narrow down the list.
Using TipRanks’ Stock Screener, I filtered for ideas that benefit from a series of strong quantitative attributes but simultaneously carry analyst consensus hold ratings. In other words, these are ideas that, by the numbers, should benefit from Wall Street’s spotlight. Instead, they’re languishing in the background.
Typically, though, the fundamentals find a way of rising to the top. With that, below are compelling sleeper stocks to buy.
GSK (GSK)
A British multinational pharmaceutical and biotechnology company, GSK (NYSE:GSK) represents one of the underlying sector’s top enterprises. It enjoys stellar operational stats, with margins across the board ranking in the upper echelon. Further, the company’s return on equity (ROE) clocks in at 40%, better than 96.5% of the drug manufacturing industry.
Despite the enviable attributes, analysts rate shares a consensus hold with no price target listed. Further, the most recent individual rating was a “sell” from Bank of America. That’s not exactly an encouraging dynamic. Nevertheless, GSK could be one of the sleeper stocks to buy.
For one thing, outside of a miss in the fourth quarter last year, GSK has consistently beaten its bottom-line targets for fiscal 2023. Even with the aforementioned miss, the average quarterly surprise comes out to 7.08%.
For the current fiscal year, covering experts believe revenue can reach $39.31 billion, up 4.2% from last year’s haul of $37.7 billion. Combined with a 3.53% forward annual dividend yield, GSK brings a balanced investment to the table.
Dominion Energy (D)
An energy producer and distributor, Dominion Energy (NYSE:D) has three operating segments. Most of the business involves the generation, transmission and distribution of regulated electricity to millions of residential, commercial, industrial and government customers in Virginia, North Carolina and South Carolina. It also is involved in nonregulated long-term contracted renewable electric generation.
Analysts don’t care for Dominion, let me just put it out there. Not only do they rate shares a hold, but the average price target sits at $48.38, implying downside risk. Still, what I appreciate about Dominion is that as a utility player, it enjoys a natural monopoly. Would-be competitors don’t even bother due to the entrenchment of the old guard.
What’s also really interesting is that analysts believe that the company can post revenue of $16.3 billion by the end of fiscal 2024. If so, that would be up 13.3% from last year’s tally of $14.39 billion. Further, the most optimistic sales target calls for $19.87 billion. D stock could be worth a rethink regarding sleeper stocks to buy.
Innovative Industrial Properties (IIPR)
Structured as a real estate investment trust or REIT, Innovative Industrial Properties (NYSE:IIPR) makes for an interesting case for sleeper stocks to buy. Per its website, Innovative Industrial is the leading provider of real estate capital for the regulated cannabis industry. It also features a broad portfolio of real estate leased to state-licensed cannabis operators.
Increasingly, the American public has gravitated toward federal legalization of marijuana. That’s a far cry from generations ago when the much-maligned plant represented a gateway to other nefarious activities. Also, cannabis could be a major issue in the upcoming presidential election. With the Republicans running a law-and-order message, the Democrats potentially have an opening with prospective voters.
Fundamentally, IIPR could rise from broader cannabis acceptance, especially amid the latest rescheduling news. For a while, the Wall Street suits were skeptical but this dynamic may now shift quite dramatically. Analysts on paper are anticipating earnings per share to reach $5.93 on sales of $321.48 million for this fiscal year. That’s up from last year’s results of $5.77 EPS on revenue of $309.51 million.
However, the latest rumblings may change everything. IIPR is one of the sleeper stocks but the market is waking up to it.
Organon (OGN)
Operating in the drug manufacturing industry, Organon (NYSE:OGN) develops and delivers solutions via a portfolio of prescription therapies and medical devices targeting women’s health. Its portfolio consists of various products such as contraception and fertility brands. It also provides therapeutics addressing conditions such as uterine bleeding and hypertension.
Fundamentally, OGN makes a case for sleeper stocks to buy due to the projected growth in the global women’s health market. Per Grand View Research, this sector reached a valuation of $44.36 billion last year. By 2030, the sector could expand to $67.07 billion, representing a compound annual growth rate of 5.7%.
For the current fiscal year, analysts anticipate EPS to reach $4.26 on revenue of $6.37 billion. Last year, the company posted EPS of $4.14 on sales of $6.26 billion. Organon also pays a forward dividend yield of 5.93%, which must be factored into the equation.
Lastly, shares are undervalued, trading at only 4.65X trailing-year earnings and only 0.77X trailing-year revenue. For a reliable idea, OGN may be one of the sleeper stocks to buy.
Affirm (AFRM)
Falling under the infrastructure software ecosystem, Affirm (NASDAQ:AFRM) operates a platform for digital and mobile-first commerce. Per its corporate profile, Affirm’s platform includes point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app. It’s perhaps best known for its buy now, pay later (BNPL) app.
Fundamentally, the case of AFRM representing one of the sleeper stocks to buy comes down to the addressable market. Per Bankrate, “[o]ver half of millennials have used BNPL services, compared to 1 in 4 boomers. Unsurprisingly, buy now, pay later is more widely adopted among younger Americans, with 55 percent of millennials and 51 percent of Gen Zers saying they’ve used it.”
Even better, analysts anticipate big growth for Affirm in fiscal 2024, targeting revenue of $2.21 billion. If so, that would come out to a 39.2% increase from last year’s print of $1.59 billion. In the following year, covering experts anticipate sales of $2.67 billion, up 20.9% from projected 2024 sales.
It’s a risky argument given the pressures of the consumer economy. Still, if you want to speculate, AFRM could be an intriguing idea.
Kaiser Aluminum (KALU)
Working in the basic materials industry, Kaiser Aluminum (NASDAQ:KALU) presents another high-risk, high-reward case for sleeper stocks to buy. Together with its subsidiaries, Kaiser – according to its public profile – engages in the manufacture and sale of semi-fabricated specialty aluminum mill products in the U.S. and internationally. Its main industries are aerospace and defense, aluminum beverage and food packaging and automotive.
Like Affirm, Kaiser – while obviously working in a completely different industry – is highly dependent on the consumer economy. While broader geopolitical considerations may drive the defense sector, other industries which Kaiser serves, such as automotive, require consumer confidence. That’s what makes KALU ambiguous and that’s reflected in recent volatility.
However, it’s also fair to point out that while fiscal 2024 may be a wash in terms of growth, fiscal 2025 could be a different story. That’s when analysts are projecting revenue to reach $3.4 billion, up 9.4% from projected 2024 sales of $3.1 billion.
At the same time, EPS could skyrocket to $7.53. If so, KALU could be a surprising idea among sleeper stocks to buy.
Sunoco (SUN)
An energy player, Sunoco (NYSE:SUN) specializes in the oil and gas refining and marketing sector. According to its corporate profile, Sunoco distributes and retails motor fuels in the U.S. It operates through two segments: Fuel Distribution and Marketing and All Other. It’s the former category – the downstream business – that could be quite enticing.
Yes, Sunoco has been choppy recently. With uncertainty clouding the economic landscape, energy demand has a question mark around it. However, such inquiries should fade soon. Cynically speaking, the world continues to run on oil. Further, the fallout in the electric vehicle space means that people are still overwhelmingly dependent on petroleum products.
It’s interesting that for fiscal 2024, analysts see Sunoco generating EPS of $6.21. That’s a dramatic lift from last year’s EPS of $3.65. Given the geopolitical backdrop and the possible pressures to supply, the projected profitability spike isn’t surprising.
However, revenue could also rise, especially if laid-off workers start job hunting. Further, a gradual fading of work-from-home privileges could lift demand. Thus, the trailing-year sales multiple of 0.21X is very low.
On the date of publication, Josh Enomoto 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.
