Riding the Digital Wave

10/30/2020 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

In its early days, Covid-19 accelerated the demand for toilet paper and hand sanitizer. It also accelerated the digital transformation occurring among businesses and consumers, notes Rich Moroney in his small-cap oriented advisory, Upside Stocks.

Of course, many companies adopted mobile apps, data analytics, and cloud computing long before the outbreak. But for companies slow to adopt, the pandemic has been a catalyst to launch a variety of digital products and services to maximize customer experiences, increase client retention, and boost sales.

Moreover, many companies have ramped spending on such advanced solutions as machine learning and artificial intelligence, aiming to become more agile, productive, and profitable.

Finally, the pandemic drove home the importance of using digital platforms to build a competitive advantage. We’re finding high-potential stocks leveraged to the digital transformation. Below, we review two standouts with with solid fundamentals, strong market positions and room to run.

Robust e-commerce spending has been a boon for ChannelAdvisor (ECOM). The company’s software connects traditional retailers to third-party online marketplaces by tracking inventory, prices, and orders.

Spanning more than 2,800 global customers, ChannelAdvisor serves several top online retailers, including Amazon (AMZN), Walmart (WMT), and Wayfair (W).

The stock has surged 107% in 2020, pushing its Quadrix Value score down to 39. But outstanding sales and earnings growth have helped to lift scores for Momentum (97) and Earnings Estimates (81).

ChannelAdvisor is set to report September-quarter results on Nov. 5. Per-share earnings are expected to hit $0.18, up 49%, on revenue of $34 million, up 9%. The company exceeded consensus profit estimates in each of the last eight quarters, by an average of $0.05 per share. The stock is a "Best Buy".

A fast-growing software provider, Mitek Systems (MITK) focuses on mobile applications used in remote banking and identity verification for digital transactions — two areas in high demand during the pandemic.

Some 7,500 customers and more than 80,000 consumers use Mitek’s apps, typically on smartphones. All told, the company has enabled more than 4 billion mobile money deposits.

Mitek earns a Quality score of 90, up from 47 a year ago. Helped by robust demand and market-share gains, pershare earnings are expected to be up 30% to $0.55 for fiscal 2020 ended September.

Sales are forecast at $98 million, up 15%. September-quarter results, expected around Nov. 5, are projected to show a 35% per-shareprofit decline to $0.14, with revenue up 7%.

Per-share earnings are expected to advance 16% in fiscal 2021. Mitek, up 73% this year and capable of climbing another 20% over the next 12 months, is a "Best Buy".

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