I often use and write about contrarian investing. That involves trying to identify stocks whose value is being greatly underestimated by the market. Contrarian investors believe that Wall Street will eventually realize the extent to which stocks they have bought are undervalued. That’s the method that I often use.
But sometimes, I employ momentum investing. With this system, investors try to identify and buy stocks that have started climbing and are in the relatively early stages of purchase by large investors. Momentum investors are betting that these equities will soar a great deal in relatively short periods of time.
Therefore, let’s examine three stocks to buy for record gains in the short-to-medium term.
Super Micro (SMCI)
In recent days, Super Micro (NASDAQ:SMCI) is being seen on the Street as a super play on the AI Revolution.
Specifically, many believe that the demand for SMCI’s servers and server platforms is likely to keep surging. After all, a growing number of companies are intensifying their utilization of AI.
That makes sense, since SuperMicro partners with two leading makers of AI chips – Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC). Specifically, SMCI’s hardware supports AI chips developed by NVDA and INTC. Further, Super Micro’s “AI-optimized, liquid-cooled server racks” lower data centers’ power consumption by 40%, according to the company.
Indeed, on Jan. 18, SMCI raised its revenue outlook for the current quarter to $3.6B to $3.65B, up from $2.7B to $2.9B previously. Also, Super Micro hiked its earnings per share, excluding certain items, to $5.40 to .555 from $4.40 to $4.88.
SMCI was a big star in 2023, soaring 246% for the year. However, between the summer and the beginning of 2024, the Street’s enthusiasm for the name dimmed noticeably. Indeed, the shares tumbled nearly 30% between their August peak and January 3.
But, as of the afternoon of Jan 18, the stock had gained about 12% since Jan. 3, suggesting a gain in momentum. Further, in the wake of the company’s announcement, its shares have jumped another 12% in early trading on Jan. 19.
The shares have a relative strength rating of 98, indicating that they do indeed have a great deal of momentum.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) was unloved in 2023, as the shares sank 14%. In multiple columns in 2023, I contended that the Street’s strong dislike for PYPL stock was completely unjustified.
First, PayPal was dominating in the fintech space and had a low valuation. Further, worries about competition from Apple (NASDAQ:AAPL) were overdone. And, PYPL was making efforts to cut its costs under its new CEO.
Now, it appears that large investors have finally discovered that PYPL stock is indeed worth buying, as the shares soared about 12% between the market close on Jan 16 and late afternoon trading on Jan 18.
On Jan. 8, Citi named PayPal as one of its top five picks in the fintech sector. Finally, PYPL’s valuation remains extremely low, as its forward price-earnings ratio is just 10.8.
Luckin Coffee (LKNCY)
Luckin Coffee (OTC:LKNCY) stock soared 6.6% on Jan. 18. This suggests that the China-based coffee retailer is finally emerging from its slump of the last several months.
The key reason for the stock’s weakness was probably anxiety over both the Chinese economy and equities. Beijing likely eased those fears on Jan. 16. It reported GDP had jumped at a robust annualized rate of 5.2%, matching its growth for the full year.
Also, the country’s retail sales had climbed an impressive 7.4% last month versus the same period a year earlier.
China’s economic data was not quite as strong as economists had expected. In fact, they are much weaker than the country’s pre-pandemic numbers. Still, they are fairly impressive and in no way suggest that the country’s economy is crumbling, as many China bears believe.
Given these points, I expect LKNCY stock to climb a great deal in the days and weeks ahead.
On the date of publication, Larry Ramer held long positions in SMCI and INTC. His wife held a long position in LKNCY The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.