Over the past few days, the major stock market indexes have rallied on optimism about a solid start to the third-quarter earnings season, a decline in jobless claims, and gradually lowering COVID-19 cases and hospitalizations. The S&P 500 notched a six-day winning streak, verging close to its record high on October 20.

While current supply chain disruptions, rising inflation, and the potential tightening of monetary policy in the near term remain concerns, the key factor driving the market higher is strong corporate earnings. According to a FactSet report, combining already reported results and estimates, the net profit margin for the S&P 500 members for the third quarter is 12.3%, which exceeds the 10.9% five-year average net profit margin. 

Given this backdrop, we think if one has $2,000 in disposable cash, one should  consider investing in Extreme Networks, Inc. (EXTR) and Universal Electronics Inc. (UEIC). These stocks possess strong growth attributes and are expected to continue gaining. They also possess a ‘Strong Buy’ rating in our proprietary POWR Ratings system.

Extreme Networks, Inc. (EXTR)

EXTR is a wireless network infrastructure and equipment provider that markets its products to business, governmental, healthcare, service provider, and educational customers. The company’s products include Extreme Wireless, Extreme Switching, Extreme Control, Extreme Management, Extreme Cloud, Extreme Analytics, and Extreme Security. 

This month, EXTR extended its Lending Enablement and Assistance Program (LEAP) through June 2022. The extension should deliver operational and financial support to its channel partners and customers by providing flexible payment, pricing, and subscription options to partners in the United States and Canada. 

EXTR’s total net revenues increased 29% year-over-year to $278.09 million in its fiscal fourth quarter, ended June 30, 2021. The company’s total gross profit grew 33.6% from the year-ago value to $161.1 million. Its net income came in at $10.33 million, versus a $21.22 million net loss in the prior-year quarter. Also, the company’s operating income amounted to $17.57 million, compared to a$13.1 million operating loss in its fiscal fourth quarter of 2020.

EXTR’s revenue is expected to increase 7.4% year-over-year to $1.08 billion in its fiscal year 2022. The company has surpassed the consensus EPS in three of the trailing four quarters. Its EPS is expected to grow 31.6% in the current year. Furthermore, EXTR’s stock has soared 28.2% in price over the past nine months and 123.6% over the past year.

EXTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has an A grade for Growth and Value, and a B grade for Quality. We’ve also graded EXTR for Stability, Sentiment, and Momentum. Click here to access all EXTR’s ratings. EXTR is ranked #2 of 55 stocks in the B-rated Technology – Communication/Networking industry.

Universal Electronics Inc. (UEIC)

Incorporated in 1986, UEIC provides wireless universal control solutions for home entertainment and smart home devices. The company’s products include video services, consumer electronics, security, home automation, climate control, and home appliance markets that are also used by various brands.

Last month, UEIC began offering voice-enabled remote controls for its Ultra set-top box to Malaysia’s content and consumer company Astro. According to the company, the remote provides automatic setup and global control of the Ultra set-top box and connected television, making self-installation easier and will also help improve users’ control and search experience on their new platform.

During the second quarter, ended June 30, 2021, UEIC’s gross profit increased 17.3% year-over-year to $44.66 million. The company’s operating income grew 39.6% from its year-ago value to $9.02 million. Its cash and cash equivalents rose 18.4% for the six months ended June 30, 2021, to $67.69 million. Also, the company’s net sales came in at $150.49 million during the period.

Analysts expect UEIC’s revenue for its fiscal year 2022 to be $683.97 million, representing 9.2% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS in each of the trailing four quarters. Its EPS is expected to grow 6.4% in the current year. The stock has gained 16.6% in price over the past year.

UEIC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Sentiment, and a B grade for Quality and Growth.

In addition to the POWR Rating grades I’ve just highlighted, one can see UEIC’s ratings for Value, Stability, and Momentum here. The stock is ranked #1 of 44 stocks in the B-rated Technology – Electronics industry.

EXTR shares were trading at $10.19 per share on Thursday afternoon, down $0.05 (-0.49%). Year-to-date, EXTR has gained 47.90%, versus a 22.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Priyanka Mandal

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...

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