We recently published a list of 10 Stocks That Could 10X Over the Next 5 Years. In this article, we are going to take a look at where CompoSecure, Inc. (NASDAQ:CMPO) stands against other stocks that could 10x over the next 5 years.
Despite ongoing concerns related to the durability of growth and interest rate policy, Deloitte believes that the broader US economy is fundamentally strong. While real GDP growth witnessed some slowness in Q1 2024, growth rebounded to 3.0% in Q2 2024. All the available evidence demonstrates that policymakers have managed to bring inflation under control without a recession.
Market experts opine that the boom in factory construction is expected to boost the economy’s potential over the upcoming years. Deloitte expects that, in the short term, a faster pace of interest rate cuts by the US Fed is expected to allow households to take on more debt and support continued consumer spending growth. This, together with the elevated government consumption, will help the US economy to grow by 2.7% this year.
Pathway for Rate Cuts
S&P Global expects that the global policy rate easing cycle remains in full swing after the 50-bps cut by the US Fed in mid-September. The US has been outperforming as growth remains above potential, amidst relatively higher policy and market rates. This above-trend growth stems from services and private investment, new business formation, and productivity.
The firm believes that the US Fed is on a path to a steady series of interest-rate cuts, and the company is expecting policy rates to reach the terminal rate of 3.00%-3.25% by 2025 end, with risks in both directions. It has kept its probability of a recession starting in the upcoming 12 months unchanged at 25%. With healthy consumption, the company expects that fears of a recession in the near term are overblown.
Amidst Noise, What Are Investment Implications?
EY believes that the US economy is expected to slow into 2025, with restrictive monetary policy and elevated costs curbing the private sector activity. On the positive side, it expects that the recession risks are contained. Households are expected to spend more cautiously, with labor market conditions and income growth softening further. Also, still-elevated financing costs will continue to prompt the businesses to hire and deploy capital with discretion. Investors should know that lower inflation and interest rates, together with a balanced labor market, should result in cooler but more sustainable economic growth in 2025. EY expects real GDP growth to average ~2.7% in 2024.
Regarding consumer spending, Vanguard believes that healthy balance sheets, together with a steady labor market, should support consumer spending over the coming quarters, though at a more modest pace as compared to recent quarters.
As per Merrill (A Bank of America Company), for long-term investors, events such as worker strikes do not often warrant action. Concerning military conflict events, the company has continued to be constructive on Defense stocks for years considering the trend in geopolitical risk. It was highlighted that the pure-play S&P 500 Defense stocks were able to outperform S&P 500 Energy stocks on October 1. This was because of elevated tensions in Israel/Iran and spike in oil prices. Also, defense stocks outperformed when equity volatility increased in July.
Therefore, Merrill believes that defense stocks provide some non-cyclical diversification benefits that cannot be offered by energy. For interest rates, the risks of supply-side inflation warrant the Fed’s attention considering the potential for disinflation to slow or stop. Also, the geopolitical conflict can mean longer-term rates and borrowing rates for the private sector remaining higher for longer.
To put things in perspective, Wall Street analysts opine that, amidst uncertainties, long-term investors should be inclined towards diversification and fundamentally strong companies that offer strong potential for the next 3-5 years.
Our Methodology
To list the 10 Stocks That Could 10X Over the Next 5 Years, we conducted extensive research and sifted through several online rankings. After extracting the list of 20-25 stocks, we narrowed the list to the following 10 stocks, and ranked them in the ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of a metal composite product, emphasizing its strength in design.
CompoSecure, Inc. (NASDAQ:CMPO)
Number of Hedge Fund Holders: 20
CompoSecure, Inc. (NASDAQ:CMPO) is engaged in manufacturing and designing of metal, composite, and proprietary financial transaction cards in the US and internationally.
The company announced that Dave Cote, former CEO of Honeywell, will take over as the Executive Chairman after the strategic transaction, which involves his family’s acquisition of a majority interest in CompoSecure, Inc. (NASDAQ:CMPO). This move should simplify the company’s structure, enhance shareholder value, and reduce market uncertainty. CompoSecure, Inc. (NASDAQ:CMPO) amended and extended its credit facility, and secured lower rates and more flexible terms.
It has an expanded partnership with Fiserv to market and resell Arculus Authenticate, which should help in creating significant opportunities. In Q2 2024, CompoSecure, Inc. (NASDAQ:CMPO) rolled out numerous new card programs and continues to experience growth. Overall, the strategic leadership changes, improved financial flexibility, and promising partnerships are expected to act as key growth enablers.
Wall Street is optimistic about the potential impact of a formal partnership between Chase and Apple for the Apple Card program. This might serve as a growth catalyst for CompoSecure, Inc. (NASDAQ:CMPO) because of its exclusive relationship with Chase. Industry veterans believe that the company’s growth trajectory is expected to continue primarily because of a significant market shift from traditional plastic to metal payment cards.
Analysts at Lake Street Capital increased their price target from $14.00 to $18.00, giving a “Buy” rating on 2nd October.
Overall, CMPO ranks 8th on our list of stocks that could 10x over the next 5 years. While we acknowledge the potential of CMPO as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than LMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.