Retail investing often means playing the long game.
That said, sometimes the allure of quick returns compels investors to put at least a portion of their portfolio into shorter-term bets.
For those investors looking for “hot stocks” to buy now in hopes of strong potential returns, here’s what the experts had to share regarding their top picks in this market right now. Before we get into that, a little market review might be helpful.
U.S. equities are in record territory. A key reason is that the Federal Reserve has adopted a very easy monetary policy with ultra-low interest rates and asset purchases in hopes of helping the economy through the pandemic. Stimulus checks from Washington have also helped boost equities to record highs.
Now that the economic recovery is well under way, demand is returning for all sorts of things — from clothing and restaurants to shopping in person and traveling for both business and pleasure. That boom is not only helping companies that make and sell finished goods but also those that produce the raw materials that are used in them.
A Few Words of Caution
Economies go in cycles, and boom times never last forever.
With inflationary pressures on the rise and the economy looking more and more stable, at some point the Fed will probably raise interest rates to keep the economy from overheating, as well as tapering its asset purchases. Both of those moves would signal headwinds for the stock market. And we’re also facing a wild card with the pandemic as a resurgence of virus cases raises the specter of a new round of local restrictions.
“In our view, equity valuations around the globe are high and there are a broad range of potential market outcomes that could play out over the next several years depending on economic growth and monetary policy,” says Sandi Bragar, managing director with Aspiriant. “That makes it imperative for investors to manage portfolio risk in this environment,” she says.
“Leading indicators appear to be peaking and economic growth for the U.S. may have peaked already,” cautions Chris O’Keefe, managing director with Logan Capital Management. “In an environment of moderating growth and a slow draining of the punch bowl, investors are likely to prefer somewhat more durable business models rather than the riskier, higher-potential growth stocks.”
But for now, there may be a window in which investors can buy stocks that have performed well this year and may have further upside. All the stocks on this list have outperformed the S&P 500 in 2021. We’re staying away from the so-called “meme stocks” simply because of their volatility and tendency to trade on speculation instead of fundamentals. Also consider that this list doesn’t include defensive stocks.
Here are three hot stocks to buy today:
— Hess Corp. (ticker: HES)
— Nvidia Corp. (NVDA)
— DocuSign Inc. (DOCU)
Playing the Reflation Trade With Hess
As travel increases and manufacturing ramps up, oil producers have been doing well. In that space, Jeff Bilsky, portfolio manager with Chartwell Investment Partners, likes Hess Corp.
The exploration and production company has development activities alongside Exxon Mobil Corp. ( XOM) in a massive petroleum province offshore the South American nation of Guyana, a project Bilsky calls “game-changing.”
After beating the market so far this year with a 33% rise as of Monday’s close, “we believe this outperformance will continue as the project is expected to generate positive (free cash flow) in 2022, which HES will use to return to shareholders,” Bilsky says. “We believe the market is still underappreciating Hess’ potential FCF yield in 2025, when the project is projected to hit peak oil production.”
“The biggest risk is there are significant production delays, which often happens with major oil projects,” he says.
Over the longer term, traditional fossil fuel companies risk losing out unless they can successfully adjust as the world shifts to renewable energy sources. Over the shorter term, hot stocks like Hess stand to benefit from rising oil prices if they can keep costs down.
Data Centers Are a Central Part of Nvidia’s Game
Despite Nvidia rising 54% this year, Will Reese, director of equity research with UMB Financial Corp. ( UMBF), thinks there is more upside for computer chip maker Nvidia.
He is forecasting more than 20% annualized revenue growth over the next several years from growth in the firm’s data center business and continued momentum in its gaming business.
“We expect the data center segment to drive most of the firm’s growth due to the fast-growing adoption of artificial intelligence in almost every industry,” Reese says.
There are some risks with this pick. Nvidia may not end up as the dominant player in the new AI market. A large chunk of the company’s sales are derived from a mature PC market. And Nvidia’s proposed acquisition of British chip technology company Arm will likely be blocked on U.K. national security concerns, Reese says.
Investors May Want to Sign Up With DocuSign
The last of the hot stocks to buy now boasting both momentum and a robust growth profile is DocuSign.
The stock has risen more than 35% this year, and Reese sees more upside as the firm expands into broader electronic contract solutions.
He sees booming customer growth supporting 30% annualized revenue gains over the next several years as customer retention rates are high and the company sells more of its Agreement Cloud suite of products and integrations that includes its flagship eSignature product.
With the e-signature market still in the early innings, Reese thinks Agreement Cloud doubles the company’s addressable market from $25 billion for e-signatures alone to $50 billion when including the suite.
Investing in stocks just because their charts are headed up and to the right at the moment can be risky. If you do your homework, though — and take expert advice — it seems like Hess, Nvidia and DocuSign might at least be worth investing in for the part of your equities portfolio not reserved for defensive plays.
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