While the equities sector still trends in a recovery mode from last year’s fallout, investors may want to spare some speculation funds toward overlooked stocks to buy. These enterprises might not get a great read from Wall Street – if analysts even know they exist. However, looking under the hood, you’ll discover that these companies command significant upside potential.
Of course, while it’s popular to besmirch the psychology of the masses, sometimes, it’s dangerous to go against groupthink. However, judging from the changes in our world that erupted following the coronavirus pandemic, certain industries stand poised for growth. And others may simply fall the wayside. This is a story about the former. Below are overlooked stocks that could be the next big thing.
|Global Water Resources
Energy Recovery (ERII)
Although one of the overlooked stocks to buy, Energy Recovery (NASDAQ:ERII) quietly enjoyed a stable bull market cycle while others gasped for air. In the trailing year, ERII gained over 13% of equity value. In contrast, the benchmark S&P 500 index slipped more than 7%. As well, ERII is off to an auspicious start to the new year, gaining 9% since the January opener.
Fundamentally, Energy Recovery commands significant relevance for multiple industrial sectors. Specializing in the manufacturing of energy recovery devices, it provides critical solutions for the oil and gas, chemical, and water industries globally.
Intriguingly, Energy Recovery carries strong acumen in the field of desalination or converting ocean water into potable (drinking) water. With the world on the cusp of a major water crisis, desalination will likely only rise in importance. B. Riley Financial analyst Ryan Pfingst agrees, initiating coverage three months ago with a buy rating. As well, the expert forecasted ERII to hit $28, implying over 24% upside potential.
Global Water Resources (GWRS)
As a water utility firm, Global Water Resources (NASDAQ:GWRS) carries a natural monopoly. Because of its footprint and the utility sector’s high barrier to entry, Global Water worked out a nice niche in its core markets of the greater Phoenix and Tucson, Arizona markets. However, it doesn’t get much attention, partially because of its lack of outstanding performance. For instance, in the trailing year, GWRS stumbled by nearly 4%.
Nevertheless, it’s one of the overlooked stocks that investors should consider. True, other utility plays may offer better financials or enjoy strong analyst support. However, Global Water benefits from migration trends. With rising costs of living particularly in coastal metropolitan areas, millennials look toward cheaper areas. Both Phoenix and Tucson provide exactly that.
To be fair, GWRS banks on its narrative as opposed to its fiscal profile. Currently, shares trade hands at almost 67 times trailing earnings. That’s a bit on the overvalued side to put it diplomatically. Still, it does enjoy strong profit margins. As well, it features a return on equity of over 15%, reflecting a high-quality enterprise.
NuScale Power (SMR)
With geopolitical tensions seemingly escalating throughout the world, energy independence has never been a more relevant topic. Despite the controversial nature of nuclear energy, it remains a viable component of the broader power infrastructure. Further, NuScale Power (NYSE:SMR) and its delivery of small modular reactors (SMRs) could be game changers, making it one of the overlooked stocks to buy.
In an email, Justin Huhn, Publisher and Founder of Uranium Insider stated that SMRs represent an attractive solution for myriad challenges associated with delivering clean energy. “SMRs are far smaller than conventional nuclear reactors; however, they can be installed in series to generate as much as 500 [megawatt] or more. Importantly, they can be factory-built in one location, then shipped, commissioned, and operated at a separate site,” said Huhn.
As well, SMRs may be built closer to the source of energy demand. Combined with their advanced safety protocols, they may potentially address the power consumption of a growing population. Thus, SMR easily ranks among the overlooked stocks to buy.
Denison Mines (DNN)
Arguably, the energy sector that requires the most product evangelism is nuclear. Therefore, it’s not particularly surprising that Canada-based uranium mining firm Denison Mines (NYSEAMERICAN:DNN) ranks among the overlooked stocks. First, you have the price tag. At $1.39 at the time of writing, most market participants would agree that it trades in penny stock territory. That’s not wonderful for long-term visibility.
However, you also have the industry itself. Let’s face it, with historical events associated with nuclear accidents along with the ongoing crisis over the Zaporizhzhya Nuclear Power Plant, the underlying industry isn’t getting any breaks from the headlines.
Still, I go back to harsh realities. Not only is nuclear power a source of clean energy, but it’s also impossible to ignore uranium’s energy density. Just one fuel pellet carries the same energy potential as 17,000 cubic feet of natural gas. Or, in terms we can all understand, it’s the equivalent of 149 gallons of crude oil. So, set aside the political noise: DNN stands among the overlooked stocks to buy.
Sibanye Stillwater (SBSW)
Whenever precious metal prices rise, many investors turn to the North American bigwigs in the space. However, relatively few consider the case of Sibanye Stillwater (NYSE:SBSW), which is based in South Africa. To be fair, many if not most investors suffer from proximity bias. And for us Americans, South Africa sits practically on the other side of the globe. Therefore, it ranks among the overlooked stocks but it’s one to buy.
Let me be 100% transparent: Sibanye represents an investment that will require patience. Since the January opener, SBSW gave up nearly 13% of its equity value. And in the trailing year, shares fell nearly 43%. That’s a disappointing print given the recent enthusiasm in the precious metals space.
Still, Sibanye also represents a major player in the palladium market – the other being Russia’s Nornickel (OTCMKTS:NILSY). In turn, palladium’s role as a key ingredient of catalytic converters can be valuable if the electric vehicle rollout sputters. After all, not everyone can afford pricey EVs.
Currently, Wall Street analysts peg SBSW as a consensus moderate buy. Also, their average price target stands at $15, implying nearly 59% upside potential.
Associated Capital (AC)
Back during the worst of the Covid-19 crisis with people stuck at home, the equities market soared. In hindsight, people basically had too much time on their hands, allowing them to exercise their inner Gordon Gekko. However, with employers now recalling their worker bees, the sentiment lift from retail investors faded significantly. And that might bode well for asset manager Associated Capital (NYSE:AC).
Presently, Associated Capital ranks among the overlooked stocks to buy because people don’t know how they feel about equities. After two blisteringly strong years in 2020 and 2021, the Federal Reserve made sure 2022 imposed significant disappointments.
However, an investment management firm allows retail buyers to ride coattails with the experts. In other words, the best institutions help make their clients money in all market cycles, not just bullish ones. Plus, Associated’s focus on alternative investments might appeal to young investors who basically grew up on these things.
Again, because AC represents one of the overlooked stocks, not many experts pay attention to it. However, Mizuho Securities’ Brett Linzey rates AC a buy.
To be quite blunt, Imax (NYSE: IMAX) won’t strike investors as one of the overlooked stocks. Unless you’ve been living under a rock for the past few decades, you know what Imax is. However, many market participants seem to ignore the upside potential that the advanced film projection company provides. As evidence, shares remain roughly 16% below parity despite a strong start to the new year.
Over time, though, this narrative may shift favorably for IMAX, meaning that investors should consider picking up shares now. Fundamentally, Imax will likely benefit from the escapism thesis. Let’s take a quick history lesson. Back during the Great Depression, the golden age of Hollywood sprouted. The films at the time comforted Americans during a period of unprecedented economic difficulty.
Moving forward, I believe the same will be said about Imax based on the value proposition. With Imax, consumers receive an experience that they just can’t get from streaming content providers. And while Imax-powered films stretch the wallet a bit more, it’s not by a ridiculous amount. Further, if you’ll excuse whataboutism, Imax offers a much more accessible entertainment source than going to a ballgame or attending a high-profile concert. Thus, it’s one of the overlooked stocks to buy.
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.