Five

of the Hottest Stocks to Own for 2018

With just two months to go until 2018, it’s never too early to start preparing your portfolio
for the New Year. That being the case, I set out to find the five smartest opportunities I
could find with a glowing long-term future.

The best part – for many the booms have just begun.

Hot Stock No. 1 – AeroVironment (AVAV)
Hot Stock No. 2 – Tronox Ltd (TROX)

When most traders hear AVAV, they immediately think drones – another red-hot sector
that’s just beginning to rocket higher. But the other hot story with AVAV is its involvement
with electric vehicle (EV) charging stations.

Here’s why that EV boom is well worth paying attention to.

The International Energy Agency just doubled its 2030 forecast from 23 million to 58 million.
Exxon Mobil boosted its 2040 estimate from 65 million to 100 million. California’s chief air-
pollution regulator just said the state is considering a ban on all cars that are fueled by internal-
combustion engines.

Automakers are getting in on it, too. In fact, General Motors just announced plans to go 100%
electric. The company currently offers extended-range EVs, the Chevrolet Bolt EV, but will add
another two over the next 18 months. It wants to add another 20 to its line by 2023.

Ford Motor Company just said it would introduce 13 new electric or hybrid vehicles.
Volkswagen wants to build an electric version of each of its 300 auto models by 2030. Even
Volvo and the Jaguar Land rover have said that their entire fleets of vehicles will be electric or
hybrid-electric by 2019 and 2020, respectively.

And to make it all work properly, the U.S. needs charging stations.

Unfortunately, the U.S. currently lags in creating the charging stations necessary to drastically
boost the number of EVs on the nation’s roads, says The Detroit News.

But that could all change quickly.

Tesla has a Super Charger Networks for its customers for free. Model S and Model X customers
will get up to 400 kWh of charging for free and then pay a fee based on local electricity costs.
Even oil and natural gas producers like Royal Dutch Shell are getting in front of the boom. In
fact, Shell is buying Netherlands-based New Motion, which has produced 30,000 private
charging stations and 50,000 public ones throughout Europe so far.

Shell wants to use that acquisition to help roll out electric vehicle stations at many of its 45,000
service stations around the world. Even they understand that demand for such vehicles is
expected to explode in coming decades.

Better yet, Morgan Stanley estimates that the world will need to spend up to $2.7 trillion on such
infrastructure to support 500 million electric vehicles. It’s part of the reason we like shares of
AVAV, which has a sizable position in the charger market with partnerships with Volvo, Nissan,
Ford, Fiat, Kia, Chevrolet, and Hyundai.

We also like TROX because of its exposure to a much-needed metal required for EV
batteries, manganese.

According to the USGS Mineral Resources Program, the U.S. is incredibly dependent on
manganese imports with no production facilities of its own. In fact, right now, the U.S. needs
500,000 tons of the metal every year, most of which is consumed by the steel industry.

Unfortunately, the supply of manganese is dangerously declining.

The other issue is demand, which is estimated to reach 28.2 million metric tons by 2022,
especially with its applications in clean energy and EVs. Analysts believe we could see sizeable
use of the nickel metal hydride (NiMH) EV batteries and the lithium-ion batteries to be
substantial catalysts for price increases in manganese, as well.

Hot Stock No. 3 – Cypress Semiconductor (CY)

CY designs, develops, manufactures, markets, and sells embedded system solutions worldwide.
It operates in two segments, Microcontroller and Connectivity Division and Memory Products
Division. The Microcontroller and Connectivity Division provides micro-controller, analog, and
wireless and wired connectivity solutions, including Traveo automotive MCUs; programmable
system-on-chip MCUs; ARM Cortex-M4, -M3, and -M0+ MCUs; R4 CPUs; analog power
management integrated circuits and energy harvesting solutions; CapSense capacitive-sensing
controllers; TrueTouch touchscreen and fingerprint reader products; USB controllers comprising
solutions for the USB-C and USB power delivery standards; and Wi-Fi, Bluetooth, Bluetooth
low energy and ZigBee radios, and WICED development platforms for the Internet of things.

What's exciting about this company is its exposure to Nintendo's Switch console, which has been
outselling Sony's PS4 over the last few months. The company had an initial goal of selling 10
million units. Others are predicting 18 million. While the console debut sent Nintendo shares
significantly higher on the year already, investors are just now turning their attention to Switch
suppliers, like Cypress Semiconductor. From our understanding, the company’s CY4356EC
wireless chipset is what provides Switch with its Bluetooth and Wi-Fi connectivity.
Analysts at Craig-Hallum noted that the new console added about 20% in incremental revenue
already to Cypress' top line in the second quarter. We believe that as sales improve, it'll add even
more to the company's top line.

Better yet, the company still shows strong signs of growth on the heels of the Internet of Things
with industrial machinery, too. It's also benefiting from the rise of connected cards and increased
demand for automotive chips.

And it's supplying the chips for USB-C connectors, which are replacing USB connectors quickly.
All of those things helped boost the company’s total revenues by 30% annually in the latest
quarter. Analysts now expect to see revenue rise 20% this year, as well.

We also have to consider that USB-C could be a good catalyst, too.

At the moment, smartphone companies are adopting such technology quickly, for instance.
Samsung is already using USB-C to power accessories for the Galaxy 8. Better yet, CY has
already seen about 50% growth of USB-C adoption over the last year. Even better, its exposure
to the automotive world could fuel a multi-year boom as well. CY’s Wi-Fi and Bluetooth chips
have already been approved by eight of the biggest companies.

Hot Stock No. 4 – Square Inc. (SQ)

SQ develops and provides payment processing, point-of-sale, financial, and marketing services
worldwide. It provides Square Point of Sale, a POS application software that offers managed
payments solutions and advanced software products, including Square Dashboard, a cloud-based
reporting and analytics tool that provides sellers with real-time data and insights about sales,
items, customers, and employees; Square Payroll, which empowers sellers to hire, onboard, and
pay employees and the associated taxes; and customer engagement tools that help sellers to
enhance their business through digital customer feedback, marketing, and loyalty programs.
What makes Square such an exciting trade is it disruptive technology.

It's disrupting every thing we know about credit card processing, which still uses old, expensive
machines to process transactions. Frustration with such archaic processing is what created
Square’s product that allows merchants to accept mobile credit card payments using a credit card
reader attached to the port of a phone. Square then takes a percentage of the transaction cost.

Such a solution has caught the attention of millions of people. And there's still plenty of growth
ahead that could fuel hefty revenue streams and profit growth for years to come. In fact, the
company believes it can grow revenue by 20% to 25% a year with margins of 35% to
40%. That’s strong growth. Plus, consider this. There are millions of small- and mid-sized
businesses just in the U.S., which generate a total of $6 trillion in revenue.

Even better, the company believes it can capture a good deal of the international market, too,
which is five times bigger than the U.S. markets.

The company also just unveiled its newest hardware offering, Square Register, a versatile, fully
integrated point-of-sale, built in-house to work seamlessly with any business. Square Register
gives sellers a powerful combination of dedicated hardware, embedded point-of-sale software,
and Square's fast and secure payments technology, all built to work together perfectly, according
to its latest press release.

Here are some of the runner-ups we didn’t want to ignore.

Hot Stock No. 5 – Alarm.com Holdings Inc. (ALRM)

ALRM provides cloud-based software platform solutions for the smart homes and businesses in
the United States and internationally. The company provides interactive security solutions to
control and monitor their security systems, as well as connected security devices, including door
locks, garage doors, and video cameras; and high definition video monitoring solutions, such as
live streaming, smart clip capture, secure cloud storage, video alerts, continuous HD recording,
and commercial video surveillance solutions.
Its providing cloud-based interactive security solutions to control and monitor security systems
and connected security devices, interfacing with doors, locks, garage doors and even thermostats
as we get closers to the Internet of Things taking over.

It already has up to five million subscribers with a renewal rate of 93%. Better yet, the company
just posted a 40% year over year increase in revenue of $86 million. EPS was 33 cents, blowing
away Street estimates of 15 cents. Even better, the company has been beating estimates for four
of the last four quarters. That’s not the only reason I’m excited about this trade, though.

One of the things you’ll hear a lot about going forward are "smart homes," or a home filled with
connected devices that can be operated with your phone, or other computer. As you can imagine,
there’s a good amount of opportunity there, especially when it comes to security.

Between now and 2020, the smart home market is expected to balloon to $43 billion, nearly
tripling its value in 2014. By 2021, research firm Parks Associates, as reported by Investors
Business Daily says that as many as 16 million North America homes will have smart-home
security by 2021, as compared to 10 million forecast for the traditional security platforms. Even
better, according to Gartner Research, there could be about 25 billion Internet of Things devices,
million of which will be used to help consumers automate their homes, according to Forbes that
need to be protected.

Plus, according to Forbes:

"Home security has emerged as the key driver in smart home adoption. Icontrol Networks
conducted a survey and found that over 90% of respondents said that home and family
security would be a top reason for them to purchase a connected home or adopt a smart
home lifestyle. Most smart security products are consumer-installed and -monitored
devices, a category which currently accounts for only 2.3% of the market, but one that
Citibank estimates will command a 34% market share in five years."
Bonus Idea No. 1 – Applied Optoelectronics (AAOI)

AAOI provides fiber-optic networking products, serving three growing end-markets, including
cable television broadband, fiber to the home, and Internet data centers. All three are driven by
the massive growth we’re seeing in network connected devices, like video traffic, cloud
computing and online social networking. As a result of industry trends, fiber optic networking
technology is under heavy demand.

For quite some time, AAOI has been a big runner. But in August 2017, it fell 39% on a solid
earnings report with soft guidance. In its second quarter, the company more than doubled its
sales year over year to $117.4 million. Adjusted EPS was up to $1.54, also beating estimates for
$1.32 million on revenue of $116 million. However, it was the company’s guidance of $111
million for the third quarter that hurt the stock. Analysts were expecting $123 million.

We believe this latest downside is only temporary, as investors jump back into the name.

Bonus Idea No. 2 – Axon Enterprises (AAXN)

AAXN develops, manufactures, and sells conducted electrical weapons (CEWs) worldwide. The
company operates through two segments, TASER Weapons and Axon. It offers TASER X26P
and TASER X2 smart weapons for law enforcement; TASER C2 and TASER Pulse CEWs for
the consumer market; and replacement cartridges.

The company also provides Axon Body 2 camera system; Axon Flex camera system that records
video and audio of critical incidents; Axon Flex 2 that builds upon the Axon Flex camera system;
TASER Cam HD, a recording device; Axon Fleet, an in-car video system; Axon Interview, a
video and audio recording system; Axon Dock, a camera charging station; and Axon Signal, a
technology. In addition, it offers Evidence.com, a cloud-based digital evidence management
system that allows agencies to store data and enables new workflows for managing and sharing
that data; Evidence.com for Prosecutors to manage evidence; and Evidence Sync, a desktop-
based application that enables evidence to be uploaded to Evidence.com.

At the moment, the body camera story is red hot, not to mention high-margin.
.
Over the first six months of 2017, body camera sales were up nearly 80% to $23.7 million. Its
body camera service business sales were up nearly 152% to $24.5 million. Better yet, since the
end of its second quarter, 38 of the country’s 68 major law enforcement agencies have bought
such cameras or its digital evidence-management business. Recently, revenue jumped 36% to
$79.6 million in the second quarter, as net income fell 36% to $2.3 million, as the company
spends more on research and development expenses. With higher demand for body cameras,
AAXN looks great for the long-term.

Bonus Idea No. 3 – Aerojet Rocketdyne Holdings (AJRD)

AJRD designs, develops, manufactures, and sells aerospace and defense products and systems in
the United States. The company operates in two segments, Aerospace and Defense, and Real
Estate. The Aerospace and Defense segment offers aerospace and defense products and systems
for the U.S. government, including the Department of Defense, the National Aeronautics and
Space Administration, and aerospace and defense prime contractors, as well as for the
commercial sector.

This segment also provides propulsion systems, such as liquid, solid, air-breathing, and electric
types of launch propulsion, in-space propulsion, missile defense propulsion, tactical missile
propulsion, and hypersonic propulsion systems for defense, civil, and commercial applications;
and armament systems for precision tactical systems and munitions serving military, civil, and
commercial customers. The Real Estate segment engages in the re-zoning, entitlement, sale, and
leasing of the company's excess real estate assets.

We believe AJRD could also be a beneficiary of the Senate-approved $700 billion defense policy
bill with an 89-8 vote. Plus, with the North Korean threat, the bill will also include $8.5 billion
for U.S. missile and defense systems. Better yet, analysts believe this company could be a prime
takeover target, especially after Northrop Grumman acquired Orbital ATK for $7.8 billion.