Return and risk are two sides of the same coin. Investors all want the former, while keeping down the latter – but that’s a pipe dream. Every stock comes with both, and one key to success is managing the balance.
That balance can be tricky, however, as risk and return potentials usually follow a direct relationship; that is, the highest return stocks typically also come with higher risk. This makes sense, as the surest way to a high return is to find stocks with low initial share prices – for in those cases, even a small gain in absolute dollars will quickly translate into a high percentage of the initial investment. But the reverse is also true, and that substantial upside brings with it higher risk.
For investors willing to take it on, however, the market is full of sound choices. These are stocks that fit a profile, a Strong Buy consensus rating, a low share price, and substantial upside potential.
We’ve run that search through TipRanks database, and found three stocks deserving a closer look. In addition to meeting the profile, they also bring with them one additional attribute: a unanimous analyst consensus, a sign for investors that Wall Street’s bullishness is no flash in the pan. Let's take a closer look.
Electric Last Mile Solutions (ELMS)
We’ll start in the automotive industry – specifically, in the electric vehicle (EV) segment. EVs aren’t new, they’ve been around since automobiles were invented in the 19th century. They are on the edge of an industrial breakout now, however, due to a confluence of political pressure that favors the ‘green’ economy and improved battery technology that makes EVs practical in ways they never were before. Modern EVs can reach ordinary highway speeds, with a ranges of 100 to 300 miles, on a single charge, and while still expensive, prices are coming down, putting them in reach of the masses.
Electric Last Mile, based in Troy, Michigan near to the heart of the Detroit’s historic automotive industry, is an EV company developing a customizable vehicle and boasts a 675,000 square foot assembly plant in Indiana that, at full capacity, will be able to produce 100,000 EVs annually. The company is aiming at the commercial market in urban areas, with a deliver van in pre-order now and a Class 1 commercial light truck under development. These vehicles are aimed at the ‘last mile,’ the final leg of the delivery chain in transport networks.
The delivery van features a 150 mile range, sufficient for daily urban deliveries, a 171 cubic foot cargo capacity, a 2,100 pound payload, and dimensions similar to existing gasoline powered vans. In addition, the vehicle will feature wireless connectivity. The vehicle is slated for production launch later this year.
ELMS started trading on the NASDAQ this past June, after completion of a SPAC merger with Forum Merger III. The transaction brought $379 million in new capital to ELMS.
Electric Last Mile Solutions has caught the eye of Jefferies’ 5-star analyst Stephen Volkmann, who’s impressed by the company’s selection of a target market in the delivery chain.
“Oddly, companies and markets have focused on electrification in the Heavy (Class 8) and Medium (Class 5-7) truck markets, despite significant range and cost challenges. In our view, the Class 1-3 ‘last mile’ market represents a much more significant opportunity for BEVs as these vehicles tend to have a relatively low level of daily mileage (50-60/day) and return to a home hub for consistent charging every evening. We estimate a TAM of over 800K veh/yr as eCommerce continues to drive higher demand for delivery vehicles, and we expect this segment to electrify fastest, driven my government incentives and corporate sustainability goals," Volkmann noted.
The analyst continued, "ELMS will be the first company to address these markets, with a vehicle already at cost parity with ICE vehicles and lower total cost of ownership. Assuming ELMS can successfully launch its vehicles as planned, we believe it can likely sell out its production for the next several years.”
To this end, Volkmann rates ELMS a Buy along with an $18 price target. The analyst, therefore, expects the stock to climb ~116% over the coming months. (To watch Volkmann’s track record, click here)
The unanimous Strong Buy consensus rating on ELMS is based on 5 reviews since the stock entered the public markets. Shares are currently priced at $8.30 each, and their $15.40 average price target suggests a one-year upside potential of ~86%. (See ELMS stock analysis on TipRanks)
Let’s stick with automotive-related companies. Ouster is a San Francisco-based tech company making LIDAR systems, a vital sensor technology used in autonomous vehicles. LIDAR allows self-driving cars to ‘see’ the road and traffic around them, both vehicular and pedestrian, in real time. It’s a vital link connecting an autonomous vehicle’s AI brain with the real world.
By the numbers, Ouster has a solid position in this growing industry. The company has 129 patents granted and pending, produces over 75 unique sensor combinations, and has over 500 customers around the world. In 2020, the company sold over 2,000 sensors. The company’s customers and partners include names like Qualcomm, Nvidia, and the US Army. Ouster’s digital LIDAR sensors are used in a variety of industries, including the automotive, but also in trucking, industrial production, infrastructure, and robotics.
In March, the company entered the public markets through a completed SPAC merger with Colonnade Acquisition, in a deal that valued the newly public company at $1.9 billion. Ouster received $300 million in new funding from the deal, and started trading on the NYSE on March 12.
In business news, Ouster scored a major deal with Plus, a provider of autonomous trucks, to supply LIDAR sensor systems – up to 2,000 systems. The end user here will likely be Amazon, as the e-commerce giant has contracted with Plus to provide autonomous delivery vehicles.
This deal, putting Ouster in Amazon’s orbit, got the attention of Richard Shannon, 5-star analyst with Craig-Hallum. Shannon notes Plus’s announcement of its contract with Amazon, and then adds that the truck maker has already committed to contracts with Ouster. In his view, this will provide long-term support for Ouster.
“OUST’s announcement of its win with Plus for a minimum 2K sensors (in a 2 sensor/truck configuration), came just 2 weeks later. OUST had hinted the end-customer was a major US player, and after the 8K we’re fairly certain it’s AMZN. OUST indicated its win could be worth 160K sensors, implying AMZN is considering outfitting 80K trucks with autonomous technology over the next few years and showing the industry is ready to adopt this technology at scale," Shannon wrote.
The analyst added, “This is a major win for OUST and does two things: 1) shows that the demand for lidar in autonomous trucking is real and here today, and the biggest players in the world are getting involved and 2) further establishes OUST as the current market leader for lidar in trucking applications, as no other lidar maker has a production contract or an end-customer as impressive as AMZN.”
Based on the above, Shannon rates OUST shares a Buy, and his $20 price target suggests it has room for a 128% upside in the next 12 months. (To watch Shannon’s track record, click here)
Ouster has only been in the public markets for a few months, but in that time has picked up a unanimous Strong Buy consensus rating based on 3 positive reviews. The shares have an average price target of $16.67 and a trading price of $9.08, giving them a one-year upside of 90.5%. (See OUST stock analysis on TipRanks)
CareCloud, Inc. (MTBC)
The last small-cap stock we're looking at, CareCloud, is a medical and healthcare IT provider, offering tech services and support for all facets of the medical sector. The company was formerly called MTBC, but changed its name in March of this year. The business remains the same, however: tech support and cloud-based solutions for medical billing, practice management, transcription, and other vital back office support for physician practices and hospitals.
CareCloud will report its Q2 results this week, but a look back at the Q1 earnings may be useful. EPS came in at a loss of 36 cents, which was improved the 42-cent loss reported in the year-ago quarter. At the top line, revenue was down sequentially for the second quarter in a row – but at $29.8 million, it was up 36% year-over-year. The company reported $21 million in cash on hand.
On June 1, CareCloud announced that it had completed the acquisition of ‘certain assets’ from MedMatica, a major name in medical staffing and back office consulting. The assets acquired include Santa Rosa Staffing and MedMatica Consulting Associates; financial details were not disclosed. In a statement from management, CareCloud said that the new assets will allow provision of a broader range of services to health system clients.
Among the bulls is Cantor analyst Steven Halper who noted, "With the acquisition of CareCloud, the company added a SaaS-based EHR application. The company's large offshore workforce is a competitive advantage in its pricing as well as how it integrates acquisitions. Indeed, acquisitions have been an important component of the company's growth, and we expect that to continue."
The analyst added, "We think MTBC shares are inexpensive on an EV/EBITDA basis. However, the company's capital structure is complex given the previous issuance of perpetual preferred shares (MTBCP -Not rated). We believe MTBC is contemplating simplifying its corporate structure, which we believe would serve as a catalyst for the shares. Even with the preferred, we believe MTBC shares are very attractive at current levels..."
Halper gives MTBC shares an Overweight (i.e. Buy) rating, with a $15 price target that indicates confidence in ~88% upside over the year ahead. (To watch Halper’s track record, click here)
It’s not often that the analysts all agree on a stock, so when it does happen, take note. MTBC’s Strong Buy consensus rating is based on a unanimous 5 Buys. The stock’s $16.20 average price target suggests ~105% upside from the current share price of $7.91. (See MTBC stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.