In this article, we will be taking a look at 10 Nasdaq sleeper stocks to buy before Wall Street wakes up.
As inflation fears continue to preside over the market, and the Federal Reserve continues to raise rates aggressively, the US dollar has skyrocketed while US Treasuries and shares across the world have been getting sold. During this time, the Nasdaq 100 Index has been performing well, showing a strong start in the third quarter and outperforming other major market benchmarks. According to a Nasdaq Index Research Team report published this October, the Nasdaq 100 Index outperformed the S&P 500 Index and the Dow Jones Industrial Average, which fell 5.28% and 6.66%, respectively. In comparison, the Nasdaq 100 was only down by 4.32% over the third quarter of 2022.
The Nasdaq Index is heavily dominated by technology stocks such as Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), among many others. While in the beginning of 2022, tech stocks saw mass sell-offs during the market downturn, a T. Rowe Price analysis of stock performance during the years leading up to 2022 shows that tech stocks still returned over twice as much as the broader market. Between January 2022 and June 2022, the MSCI AC World Index returned 13.24%, while the MSCI AC World Information Technology Index returned 27.54%. The earnings for tech companies also surged during these years in light of the accelerated adoption of a range of tech trends such as cloud computing and online shopping, especially when the pandemic was at its peak.
This morning inflation came in lower than expected and dropped below the 8% threshold for the first time in a long time. We believe this is finally the beginning of a trend as the Fed’s rate hikes are finally affecting the inflation rate. Investing in smaller companies in the Nasdaq Index, particularly technology companies that are going ignored by investors in the market at present, is now beginning to seem like a smart investment strategy. Small-cap stocks are now becoming smarter choices because the US dollar is strong enough to boost their run. According to a Wall Street Journal article published in October, the S&P 600 small-cap index rose by 5.3% that month, beating the large-cap S&P 500’s 2.6% gain. For 2022, the S&P 600 is now on the path to outperform the broader benchmark for the first time since 2016. With tech stocks performing well in their own domain, and small-cap companies being on the winning end of the market for the first time in several years, now seems the perfect time to look at the stocks selected for our list below.
Photo by Pascal Bernardon on Unsplash
Let’s now take a look at the 10 Nasdaq sleeper stocks to buy before Wall Street wakes up.
Our Methodology
We have selected mostly smaller companies that are going largely ignored among investors today. Most of these stocks are trading at share prices below $50-$60, and they have significant growth potential based on their key fundamentals such as revenue growth and net income or gross margins. We have ranked the stocks based on the number of hedge funds holding stakes in them, from the lowest to the highest.
Nasdaq Sleeper Stocks to Buy Before Wall Street Wakes Up
10. SmartRent, Inc. (NASDAQ:SMRT)
Number of Hedge Fund Holders: 9
SmartRent, Inc. (NASDAQ:SMRT) is a smart home automation company based in Scottsdale, Arizona. The company was founded in 2017. Its smart home products and solutions provide options like self-guided tours, parking management, and access control to homeowners and developers looking to create a customized automation platform.
On October 17, Morgan Stanley’s Erik Woodring reiterated an Equal Weight rating on SmartRent, Inc. (NASDAQ:SMRT) shares.
SmartRent, Inc. (NASDAQ:SMRT) is a small company with significant growth potential. It is currently trading below $5, making it severely undervalued according to analysts such as those as Arie Investment Management. Demand for the company’s solutions has been on the first in 2022, as shown by over 91,000 units being booked in the first quarter and the expansion of the company’s customer base to 290 customers. On March 31, SmartRent, Inc. (NASDAQ:SMRT) reported $278 million in cash, $599 million in assets, and $169 million in liabilities, making its financial situation appear stable. It has offered guidance for 2022 including revenue between $220 million and $250 million, and over 280,000 units deployed.
Long Pond Capital was the largest stakeholder in SmartRent, Inc. (NASDAQ:SMRT) in the second quarter, holding 7.4 million shares worth $33.6 million. In total, nine hedge funds were long the stock, with a total stake value of $68.7 million.
Investment management company Vulcan Value Partners mentioned SmartRent, Inc. (NASDAQ:SMRT) in its third-quarter 2022 investor letter. Here’s what the firm said:
“We have discussed SmartRent, Inc. (NYSE:SMRT) at length in recent quarters. Demand for their products and services continues to be solid, but the company is facing supply chain issues that continue to impact its installation schedule. This combination has led the company to reduce guidance. We believe that the supply chain will continue to be a headwind but we are also starting to see some anecdotal evidence that the supply chain challenge is improving. We believe these supply chain challenges will continue to improve, allowing the company to produce free cash flow by second half of 2023. The company’s financial position remains strong, with $250mm in cash and no debt. This should enable the company to manage through this tough environment. We remain optimistic about the long-term opportunity ahead for the company.”
SmartRent, Inc. (NASDAQ:SMRT), like Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), is a Nasdaq stock worth keeping an eye on this year.
9. PubMatic, Inc. (NASDAQ:PUBM)
Number of Hedge Fund Holders: 12
PubMatic, Inc. (NASDAQ:PUBM) is a communication services company providing a cloud infrastructure platform enabling real-time programmatic advertising transactions for content creators on the Internet. The company offers Openwrap, a header bidding solution with management and analytics tools. It also offers Openwrap OTT, a header bidding management solution.
The company has demonstrated significant revenue and EPS growth over the recent quarters and its stock is currently attractively valued at under $20. In the second quarter of 2022, PubMatic, Inc. (NASDAQ:PUBM) saw year-over-year revenue growth of 27%, a net income margin of 12%, and an adjusted EBITDA margin of 37%. It reached its long-term growth target of 20% or more over the past eight quarters. Since PubMatic, Inc. (NASDAQ:PUBM) is going ignored by investors at present, those interested in the stock can currently buy it for 17 times trailing earnings, making it attractively valued for a solid performer.
Our hedge fund data shows 12 funds long PubMatic, Inc. (NASDAQ:PUBM) in the second quarter, with a total stake value of $21.9 million.
8. Upstart Holdings, Inc. (NASDAQ:UPST)
Number of Hedge Fund Holders: 15
Upstart Holdings, Inc. (NASDAQ:UPST) is a consumer finance company operating as a cloud-based artificial intelligence lending platform. The company is based in San Mateo, California. It aggregates consumer demand for loans and connects them to its network of AI-enabled bank partners.
John Hecht at Jefferies has a Hold rating on Upstart Holdings, Inc. (NASDAQ:UPST) as of November 9. The analyst also placed a $20 price target on the stock.
Upstart Holdings, Inc. (NASDAQ:UPST) is a long-term buy, and considering that the stock is down over 80% so far this year, now is the perfect time to gain positions in the stock. The company’s revenue is expected to become stable over the long run, helped by the addition of new partners to its AI-powered lending marketplace. Upstart Holdings, Inc. (NASDAQ:UPST) has been expanding its presence among auto dealerships, and this is helping the company set up a brighter future. In the second quarter, the company’s adjusted EBITDA of $5.5 million showed its profitability at the operating income level.
Out of 895 hedge funds tracked in the second quarter, 15 funds were long Upstart Holdings, Inc. (NASDAQ:UPST). Their total stake value was $115 million. Of these funds, ZWEIG DIMENNA PARTNERS was the largest stakeholder in the company, holding 35,050 shares worth $729,000.
Vulcan Value Partners, an investment management firm, mentioned Upstart Holdings, Inc. (NASDAQ:UPST) in its second-quarter 2022 investor letter. Here’s what the firm said:
“Upstart Holdings Inc. was a material detractor for the quarter. It was a mistake, and we sold our position. Upstart is an artificial intelligence (AI) and cloud-based lending platform. The company uses AI models that are designed to underwrite superior loans with lower interest rates, lower default rates, higher approval rates, and increased underwriting automation. When we purchased Upstart, we believed the company had an excellent product and the addressable market was large.
Upstart’s results during 2021 were impressive. In the first quarter of 2022, the company reported solid results but lowered guidance and, more importantly, used its balance sheet to warehouse loans temporarily. The company’s decision to use its balance sheet to finance its growth surprised us and other market participants, and its stock price decreased dramatically. While we admire the management team, we are less confident in the company’s long-term prospects.
It will be more difficult than we anticipated for Upstart to extend its competitive advantages with smaller banks into adjacent markets such as auto loans and mortgages. As a result, our value for Upstart is unstable and the company no longer qualifies for investment. We are following our discipline and reallocating capital into companies with more stable values.”
7. Axcelis Technologies Inc. (NASDAQ:ACLS)
Number of Hedge Fund Holders: 22
Axcelis Technologies Inc. (NASDAQ:ACLS) is an information technology company that designs and services ion implantation and other processing equipment. The company is based in Beverly, Massachusetts, and provides its products in the US, Europe, and Asia. It offers high energy, high current, and medium current implanters for application requirements.
In the face of challenging supply chain and logistics, Axcelis Technologies Inc. (NASDAQ:ACLS) has managed to beat revenue guidance in the second quarter by $6.82 million. The company’s revenue for the quarter came in at $221.18 million, showing its resilience. Its gross margin was 44.8%, also well above guidance figures. Axcelis Technologies Inc. (NASDAQ:ACLS) has also reduced its operating expenses as a percentage of revenue by over 10% in the past eight quarters, showing the company’s ability to exercise cost control to boost profitability.
Axcelis Technologies Inc. (NASDAQ:ACLS) was found among the 13F holdings of 22 hedge funds in the second quarter and 23 hedge funds in the previous quarter. Their total stake values were $184.1 million and $232.9 million, respectively.
6. GoPro, Inc. (NASDAQ:GPRO)
Number of Hedge Fund Holders: 25
GoPro, Inc. (NASDAQ:GPRO) is a consumer discretionary company that develops and sells cameras, mountable and wearable accessories, and subscription services and software. It operates in the US and internationally as well. The company is based in San Mateo, California.
Oppenheimer’s Martin Yang holds a Perform rating on GoPro, Inc. (NASDAQ:GPRO) shares as of November 4.
The company has been on a growth path in 2022, showing a 65% increase in its subscribers during the second quarter. GoPro, Inc. (NASDAQ:GPRO) had 1.91 million GoPro subscribers over this period, and recorded 70% to 80% in gross margins during this time as well, showing that the subscription service is proving to be its most profitable product. GoPro, Inc.’s (NASDAQ:GPRO) subscribers translate into annual recurring revenues of $100 million, and it’s likely that the number of subscribers will continue to grow into 2023.
Royce & Associates was the largest stakeholder in GoPro, Inc. (NASDAQ:GPRO) in the second quarter, holding 686,445 shares worth $3.4 million. In total, 25 hedge funds were long the stock, with a total stake value of $125.5 million.
GoPro, Inc. (NASDAQ:GPRO), like Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), is a Nasdaq stock with significant growth potential as the market recovers.
5. Upwork Inc. (NASDAQ:UPWK)
Number of Hedge Fund Holders: 25
Upwork Inc. (NASDAQ:UPWK) is an industrial company that operates a work marketplace connecting businesses with independent professionals and agencies. The company operates in the US, India, the Phillippines, and internationally.
On October 27, Needham analyst Bernie McTernan reiterated a Buy rating on Upwork Inc. (NASDAQ:UPWK) shares. The analyst also placed a $19 price target on the stock.
The company’s gross service volume rose by 19% year-over-year in the second quarter. Upwork Inc.’s (NASDAQ:UPWK) marketplace revenue was $144.3 million, also growing at 26% year-over-year. The company’s client base has been growing over the past quarters and has contributed to the revenue growth by increasing client spending.
There were 25 hedge funds long Upwork Inc. (NASDAQ:UPWK) in the second quarter. Their total stake value was $401.7 million.
4. Rivian Automotive Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: 35
Rivian Automotive Inc. (NASDAQ:RIVN) is an automobile manufacturing company selling electric vehicles. The company is based in Irvine, California.
Vijay Rakesh, an analyst at Mizuho, reiterated a Buy rating and a $65 price target on Rivian Automotive Inc. (NASDAQ:RIVN) shares on October 11.
Rivian Automotive Inc. (NASDAQ:RIVN) reported revenues of $536 million in the third quarter. It is also improving its loss margins. For instance, in the third quarter, its non-GAAP loss narrowed by $34 million. The company is also benefitting from high demand for its products, as seen in the second quarter when it reported about 98,000 net pre-orders. These orders are in addition to the 100,000 initial orders of electric vans ordered by Amazon.
Rivian Automotive Inc. (NASDAQ:RIVN) was found among the 13F holdings of 35 funds in the second quarter and 29 funds in the previous quarter. Their total stake values were $1.6 billion and $3.9 billion, respectively.
Baron Funds, an asset management company, mentioned Rivian Automotive Inc. (NASDAQ:RIVN) in its third-quarter 2022 investor letter. Here’s what the firm said:
“Rivian Automotive, Inc. (NASDAQ:RIVN) designs, manufactures, and sells consumer and commercial electric vehicles (EVs). Shares of Rivian were up 28% in the third quarter driven by second quarter production that beat expectations, a new partnership with Mercedes Benz, and the positive potential impact of the recently announced Inflation Reduction Act on accelerating broader EV adoption. While Rivian continues to be impacted by supply-chain issues that are causing delays in its production ramp, it is addressing the challenges by diversifying its supply chain to alleviate shortages while also consolidating the number of variants in development to reduce cash burn (the company guided that current cash will be enough to support the company’s future platform launch R2 in 2025). The company also recently reported stronger than-expected third quarter production results while reiterating its annual guidance of producing 25,000 units. As semiconductor shortages ease, we believe the company will be able to rapidly ramp its production. While we retain conviction in the shares given the company’s vision, product positioning, relationship with Amazon.com, and strong balance sheet, we have reduced the size of our position.”
3. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 43
EBay Inc. (NASDAQ:EBAY) is an internet and direct marketing retail company connecting buyers and sellers on its marketplace platforms. It is based in San Jose, California.
Daniel Kurnos at Benchmark holds a Buy rating on EBay Inc. (NASDAQ:EBAY) shares as of November 3. The analyst also placed a $62 price target on the stock.
EBay Inc. (NASDAQ:EBAY) has a decent operating future and positive performance in the third quarter. The company beat its guidance figures for revenue, non-GAAP operating margins, and non-GAAP EPS. Its revenue was $2.38 billion, beating the guidance of $2.29-$2.37 billion, non-GAAP operating margin was 28.9%, while the guidance was between 27-28%, and its non-GAAP EPS was $1, while the guidance was between $0.89-$0.95.
In total, 43 hedge funds were long eBay Inc. (NASDAQ:EBAY) in the second quarter. Their total stake value was $1.3 billion.
Smead Capital Management, an investment management company, mentioned eBay Inc. (NASDAQ:EBAY) in its third-quarter 2022 investor letter. Here’s what the firm said:
“Two things are very noticeable right off the top. First, sometimes you have to be happy losing less in a bear market environment so that you have more of your capital to grow in the next bull market. We are never really happy losing money. Second, 2022 is likely to be our third year of existence as a fund to lose money for the year. This year would join 2008 and 2018 in this undistinguished category. Our biggest detractors was dominated by eBay (NASDAQ:EBAY). Consumer/investor fears about media and e-commerce hit WBD and EBAY and profit taking in Amgen came from early 2022 strength.”
2. Zoom Video Communications, Inc. (NASDAQ:ZM)
Number of Hedge Fund Holders: 44
Zoom Video Communications, Inc. (NASDAQ:ZM) is an information technology company providing a unified communications platform. The company is based in San Jose, California.
A Buy rating was reiterated on Zoom Video Communications, Inc. (NASDAQ:ZM) shares on November 9, by analyst Catharine Trebnick at MKM Partners. The analyst also placed a $100 price target on the stock.
Now is a good time to gain a position in Zoom Video Communications, Inc. (NASDAQ:ZM), as the stock lost 55% year-to-date as of October 31. The company has over $5 billion in cash on its books, with no debt. Its enterprise value was $19.53 billion at the end of October.
Zoom Video Communications, Inc. (NASDAQ:ZM) had 44 hedge funds long its stock in the second quarter and 43 hedge funds long its stock in the previous quarter. Their total stake values were $2.9 billion and $3.2 billion, respectively.
1. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 77
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is another information technology company on our list. It provides cloud-delivered protections across endpoints and cloud workloads, identity, and data.
On November 2, Macquairie’s Frederick Havemeyer initiated coverage of CrowdStrike Holdings, Inc. (NASDAQ:CRWD) shares with an Outperform rating and a $220 price target.
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leading cybersecurity company. The number of customers subscribing to the company’s Identity Protection modules in the fiscal first quarter of 2023 grew over 30% quarter-over-quarter. The company has seen its endpoint market share grow drastically between 2019 and 2022, from 6.3% to 12.6%.
Our hedge fund data shows 77 funds long CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in the second quarter, with a total stake value of $4.1 billion.
Carillon Tower Advisers, an investment management company, mentioned CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its second-quarter 2022 investor letter. Here’s what the firm said:
“CrowdStrike Holdings, Inc. (NASDAQ:CRWD), a security software platform for protecting information technology assets and cloud workloads, delivered strong earnings results, with solid recurring revenue, customer growth, and profitability. Some investors, however, hoped for bigger numbers on the annual recurring revenue metric. Additionally, CrowdStrike has shown a desire to continue to hire to fuel growth, and so the expected increase in future profitability will be held back somewhat in the near term. We remain positive on the company’s prospects, as current geopolitical tensions make cyber security mission-critical.”
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Disclosure: None. 10 Nasdaq Sleeper Stocks to Buy Before Wall Street Wakes Up is originally published on Insider Monkey.
