Schrodinger (SDGR)
The company is a service provider for the biopharmaceutical and industrial space, working on developing new molecules that can be used for drug development or new materials. Additionally, Schrodinger works with governments and research institutions.
While many companies work on developing new products that are upgrades to existing ones, Schrodinger could develop a novel molecule with new applications at any time. That makes for an innovative company concept. And their business model of licensing research software to do so ensures that they can earn a steady cash flow.
That’s helped revenues rise by 33 percent in the past year. While not yet profitable, Schrodinger’s business model will allow it to become profitable in time – and earn a big profit margin while doing so.
Even better, Schrodinger is cash rich, with over $400 million in net cash on the balance sheet, or more than 10 percent of their market cap. In time, as Schrodinger increases cash flow and moves to profitability, it’s exactly the kind of business that could reward shareholders with buybacks and dividends.
For now, it looks like an innovative company operating in a business model that should lead to a higher valuation in time – but it’s finally starting to trend higher.
Block (SQ)
Payment processing company Block (SQ) recently rebranded from the name Square. The idea was to focus the company better on opportunities in blockchain technologies.
That was a poor strategy, as anything blockchain related in 2022 took a big dive as a Crypto Winter unfolded.
That led to a 70 percent drop in Block shares. Yet, that extreme selloff could indicate an opportunity for a stock that could lead it to double in the coming months.
Even with the big drop in share price, Block grew earnings by 17 percent last year. That’s a great show for a slowing economy, especially as a payment processing company is dependent in part on the number of transactions it makes.
However, in the first half of 2023, Block saw accelerating earnings growth, moving to a 26 percent increase in revenues.
And while Block didn’t earn a profit, the stock did go from 410 times earnings estimates to under 40 times forward earnings by the end of 2022.
Costs have come down, and customers are seeing higher levels of engagement. And the company’s improved operating leverage has led to a number of analysts seeing a higher share price in the year ahead.
With the company’s operations improving and a share price still well off the 2021 tech rally highs, the value appears to be in place for a significant move higher in the second half of 2023. A doubling in price looks possible for this tech giant that got hit hard last year.
Paramount Global (PARA)
The pandemic was great for media stocks, as consumers had less opportunity for other leisure activities and more time for watching streaming shows. That trend reversed in 2022, and many media stocks took a big hit.
Yet that move may be overdone. One example is Paramount Global (PARA). Shares dropped 40 percent. Revenues rose by less than 5 percent last year, and earnings slid by over 50 percent.
2023 hasn’t offered much in the way of relief yet. A strike in Hollywood has halted production across the industry. That only tells part of the story. A slowdown in content binging has taken a toll on shares. Yet now the company trades at less than 0.5 times its book value, and about 0.3 times price-to-sales.
Things still look ugly. But the strike will end. And until it does, the company has an existing library of entertainment properties on its streaming platform for users to enjoy.
It’s clear that the stock is becoming an overall bargain, as investors today can buy a massive library of media properties for less than what the pieces are selling for across various broadcast and streaming services.
We’re not alone in that assessment – last November, Berkshire Hathaway (BRK-A), the investment conglomerate run by Warren Buffett, revealed that they increased their stake in the company. And they did it again in the second quarter of 2023.
Given the short-term upside catalyst from a resolution to the Hollywood strike, Paramount Global looks attractive for big returns in 2024.
Cleveland-Cliffs (CLF)
Not all of the top bargains are in beaten-down tech plays. Fears of a slowing economy have had a big impact on a number of commodities key to economic growth.
That includes the production of steel from iron ore pellets. And one of the top ore producers, Cleveland-Cliffs (CLF) looks poised to deliver big returns in 2024, especially as the company continues to see strong orders from global militaries for its steel.
While commodity markets can be volatile, it’s clear that a modest improvement in the steel industry’s outlook can be huge for CLF shares.
With an improving outlook for the economy, today’s buyers could be sitting on a double or better in the coming year.
As a commodity play, shares will be volatile. And commodity markets are highly cyclical. So this would be a position to watch closely for profit-taking.
Southwestern Energy Corporation (SWN)
The energy sector proved to be the best-performing part of the market in 2022. Energy prices soared at the start of the year as Russia invaded Ukraine. However, prices started to slide by year-end, thanks to higher oil production and rising inventories. 2023 saw prices trade largely in a range. But don’t let that cause you to write off energy companies that still have room to run.
Southwestern Energy Corporation (SWN), and oil and gas producer that focuses largely on liquefied natural gas, looks like a continued winner here. The LNG trend looks stronger than the rising and falling prices occurring across the energy space as a whole.
Seasonal demand for natural gas by the end of the year could lead to a double here.
With long-term demand on the rise for US-based liquefied natural gas, Southwestern looks to be a big winner for years to come. And it’s a small enough company that a larger energy play could buy out the firm, leading to a quick profit. 2023 has seen some sizeable acquisitions in the energy sector.
At the moment, Southwestern doesn’t pay a dividend as many energy stocks do. That could change in the future. But as long as the company is retaining its earnings, they’re capable of faster growth – which should translate into an even higher share price in the years ahead.