June 7, 2022- Rocket Lab USA, Inc. (NASDAQ:RKLB) and Spotify Technology S.A. (NYSE:SPOT)
With continued uncertainty in the market, we took a different approach to find the best stocks to buy now.
The safe thing to do would be to find companies focused on fundamentals that can blunt economic shocks. However, sometimes, the best thing to do is to go contrarian.
Just think how investors that bought energy stocks when oil turned negative in 2020 feel today.
We will take that same approach with two speculative plays in Rocket Lab USA, Inc. (NASDAQ:RKLB) and Spotify Technology S.A. (NYSE:SPOT).
Calling these two of the best stocks to buy now is admittedly a gamble. However, their generational upside at these valuations cannot be denied.
As markets continue to weigh the possibilities of a recession, Monday (June 7, 2022) was a microcosm of what investors are dealing with. Stocks started the day hot but closed well off their peaks. The Dow managed to gain just 0.05%, the S&P 0.31%, and the Nasdaq 0.40%.
Markets could move even more later this week once labor numbers and the latest CPI report come out.
So with that being said, doesn’t it defy logic that two speculative growth plays could be the best stocks to buy now?
Perhaps. But nobody ever made money without some risk.
The upside for both stocks is too tantalizing to ignore. Rocket Lab, for one, could have over 180% upside. It’s disrupting the intriguing space travel market with sticky government contracts.
Meanwhile, Spotify remains Spotify. It trades at a mouth-watering discount and has seen some significant analyst moves. Raymond James, for one, just upgraded its coverage. KeyCorp also set a price target with an 89.12% upside from June 6, 2022’s close.
But analyst upside just scratches the surface. There are countless other reasons why RKLB and SPOT are June 7, 2022’s best stocks to buy now.
Rocket Lab USA, Inc. (NASDAQ:RKLB)
An unconventional play in this market has bullish institutional activity and over 180+% upside.
It defies logic to invest in speculative space travel stocks right now. Why would you? Rates are rising, inflation is the buzzword, and investors want value over growth.
But sometimes, you just have to swing for the fences when you see generational possibilities.
Rocket Lab USA, Inc. is a pure-play on the space industry. Yet this innovator isn’t some gamble on commercial space travel. It goes beyond the space industry and provides launch services and space systems solutions for the defense industry.
Think of it this way. RKLB offers speculative upside coupled with some stability.
First is the speculative upside.
SpaceX, Blue Origin, and bored rich people who want to go to space get the most attention. But investing in the space industry offers more possibilities than that. Consider the following projections:
- The global space tourism market could become a $1.7 billion industry by 2027 at a 15.2% CAGR.
- The worldwide space launch services industry could rise to $32.41 billion by 2027 at a 15.7% CAGR.
- Morgan Stanley believes the global space industry could be a $1 trillion+ sector by 2040.
Rocket Lab has several products positioned for this upside.
There’s first the Electron rocket, the world’s only reusable small launch vehicle in service. Then, there’s the Photon spacecraft, a small-size configurable spacecraft. Although only 2 currently orbit Earth, Varda Space Industries, in late May, increased its previous order for 3 Photon spacecraft to 4.
These products, however, don’t speak to Rocket Lab’s stickiness and stability. Rocket Lab has two potentially game-changing projects with the Department of Defense and NASA.
First, there’s the Neutron launch vehicle. The Department of Defense, specifically the US Space Force, awarded Rocket Lab a $24 million contract to develop the project last year. Once the Neutron is complete, it will have the capability to launch 8-tons worth of cargo beyond Earth’s orbit.
Then, last month, Rocket Lab announced a partnership with NASA called the CAPSTONE spacecraft. The objective is to use the CAPSTONE as part of a long-term NASA mission to the Moon.
So while RKLB is more speculative than value, there are several things to love about the stock.
There is analyst upside, for one. With the stock over 60.0% below its highs earlier in the year, many analysts are bullish about RKLB’s upside.
According to Tipranks, 5 Wall Street analysts offered 12-month price targets for RKLB in the last 3 months. Based on this data, Tipranks rates RKLB a STRONG BUY. RKLB has an average price target of $14.10, a high forecast of $18.00, and a low of $6.50. The average price target represents a shocking upside of 183.13% from June 6, 2022’s closing price of $4.98.
Deutsche Bank analyst Edison Yu is wildly bullish on the stock’s prospects. He has a $14.00 price target on the stock and uses SpaceX as a barometer for the stock’s valuation. Days ago, SpaceX reportedly sought a $127 billion private valuation. Currently, RKLB’s market cap sits around $2 billion. He also sees RKLB’s growth and margins improving the next year and the Neutron rocket selling out 2-3 years before it’s complete.
There might be something to Yu’s thoughts. Granted, his statement is full of what-if scenarios. But Ken Fisher, billionaire investor and founder of Fisher Investments, recently bought 538,913 shares of RKLB. So maybe there’s more to the story.
Adding more meat to the bones, Finbox data also reveals that the stock may be nearly oversold based on its 14-day RSI. It also has some bullish net income growth projections, including
- Net income growth forecast of 42.6%.
- Net income growth to average 213.3% over the next five fiscal years.
- Median net income growth of 55.5% over the next five fiscal years.
RKLB’s year-to-date low and high are also $4.59 and $12.47, respectively.
Spotify Technology S.A. (NYSE:SPOT)
A recent upgrade from Raymond James adds to this media giant’s upside potential exceeding 30+%.
Like many other tech stocks, Spotify has taken a big hit in 2022. It seems like it fell off a cliff when looking at its year-to-date chart. The stock peaked at $247.20 on the first trading day of the year and currently sits over 55.0% below that.
So it begs two questions.
Number one- is this the right time to buy the dip?
Number two- if things are so bad, why did Raymond James just upgrade the stock from MARKET PERFORM to OUTPERFORM?
The answer to both questions is simple. There is more to this story than meets the eye.
Spotify provides audio streaming services in 184 countries and territories. It has also seen consistent growth in its monthly active users and premium subscribers.
During its Q1 earnings report, the Company revealed 422 million monthly active users, a 19% year-over-year increase. It also now has 182 million subscribers, a 15% year-over-year increase.
Source: Spotify
Spotify’s Q1 2022 earnings also beat both top and bottom-line estimates and continued a trend of earnings beats.
Source: Google
Spotify’s quarterly figures also saw incredible year-over-year growth from Q1 2021, including
- Revenue year-over-year increase of 23.94%
- Net income year-over-year increase of 469.57%
- Diluted EPS year-over-year increase of 184%
- Net profit margin year-over-year increase of 359.81%
With strategic partnerships with FC Barcelona, acquisitions of Podsights and Chartable, and more, its next earnings report on July 27, 2022, should invoke excitement rather than pessimism.
After all, even before these moves, Spotify had a limitless music portfolio and a growing podcast scene. It remains the exclusive home of the polarizing Joe Rogan, who draws about 11 million listeners per episode.
Fundamentally, Spotify holds more cash than debt on its balance sheet. This is a big deal for a high-growth company in a rising rate environment. Its 26.7% gross margin doesn’t hurt either.
Moreover, Spotify’s revenue could have a 5-year 26.8% CAGR. Net income could also have the following growth projections:
- Growth forecast of 24.6%.
- Average growth of 216.9% over the next five fiscal years.
- Median growth of 127.8% over the next five fiscal years.
There’s immense analyst upside as well. According to Tipranks, 23 Wall Street analysts offered 12-month price targets for Spotify in the last 3 months. The average price target is $150.59 with a high forecast of $235.00 and a low forecast of $101.00. The average price target represents a 35.62% change from June 6, 2022’s closing price of $111.04.
As mentioned earlier, Raymond James just upgraded the stock from MARKET PERFORM to OUTPERFORM and gave the stock a $150.00 price target.
Even more striking is KeyCorp analyst Justin Patterson’s recent Spotify coverage. On June 3, 2022, he maintained a BUY rating and gave the stock a $210.00 price target. That’s an 89.12% upside move from June 6, 2022’s close.
With SPOT’s year-to-date low and high at $89.03 and $247.20, respectively, there might be nowhere else to go but up.
