Our Elite Eight Stock Picks on the Road to the Next Netflix

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It's Day Four of our March Madness stock-picking bracket, and it's time to narrow the field to eight stocks on our way to finding the next Netflix (Nasdaq: NFLX).

Yesterday we began eliminating stocks , trimming the field from 16 to 12. Now we'll cut it down to an " Elite Eight ." Tomorrow we'll slice the field in half and introduce our Final Four candidates to become the next Netflix - a growth stock that we believe could rise 432% in just over two years.

But first, we need to narrow the field to eight. Let's get started:

Cloud Computing and Data: Datawatch (Nasdaq: DWCH) vs. Demandware (Nasdaq: DWRE)

Twenty-five years after it was invented, the Internet continues to grow. Consequently, there's more data out there than ever before. To consolidate and make sense of all that data, companies need a little outside help.

That's where Datawatch and Demandware come in. Datawatch provides data solutions to more than  40,000 customers, 99 of which comprise the Fortune 100. The company specializes in unstructured data - PDF documents, Excel data, HTML reports web tracking data, etc. Most of Datawatch's customers are in the financial services and healthcare industries.

Demandware, meanwhile, specializes in cloud solutions - specifically for retail companies. It helps retailers such as Brooks Brothers and Lands' End differentiate their digital brand experiences across multiple platforms.

Both Datawatch and Demandware shares have more than doubled in the past year. Both companies' sales are growing by at least 29%. Neither is profitable yet, though that hasn't stopped investors from snatching up shares of both in droves.

The difference is that Datawatch is a smaller company, with $250 million market cap compared to Demandware's $2.3 billion valuation. It also has more near-term catalysts for growth than Demandware.

For starters, its foothold in the financial services and healthcare markets give it an advantage over Demandware, given the ups and downs in the retail sector right now. It also has a new management team on board and recently bought out a visual analytics company called Panopticon.

In a close contest, those factors tip the scales in favor of Datawatch.

Winner: Datawatch

Internet Commerce: LifeLock ( LOCK ) vs. Zulily (Nasdaq: ZU)

These two companies are relatively new to Wall Street. But both stocks have taken off since going public.

LifeLock is an identity theft protection company with a market cap of $1.7 billion. The company protects its clients from identity theft and credit fraud, and alerts them when their personal information is being used. Since going public in October 2012, shares have risen 124%.

Zulily is quite different. It's an online women's retail company that specifically targets moms. It has a market cap of $6.7 billion. Zulily shares have risen 46% since the company's Nov. 15 IPO.

Zulily is in the midst of remarkable growth. Earnings were up 293% in the last quarter compared to a year ago, while its sales doubled. The company also has over $300 million in cash and zero debt.

LifeLock also has no debt and its quarterly earnings growth is even stronger than Zulily's. But the company also has some serious red flags .

There are dozens of similar competitors in the identity theft sector. Five years ago, Experian, a credit report and credit score company, sued LifeLock for fraud and a judge actually ruled LifeLock's primary business activity at the time to be illegal. And company co-founder Todd Davis has 13 counts of fraud listed against his name.

LifeLock may ensure its customers safety from identity theft. But Zulily is the safer investment.

Winner: Zulily

Food: The Fresh Market (Nasdaq: TFM) vs. SodaStream (Nasdaq: SODA)

Food doesn't sound like a novel category for growth. But considering the rise of organics and gluten-free foods and the increasing popularity of reality food TV shows, the food industry has evolved greatly.

The Fresh Market and SodaStream are two companies that are tapping into that change.

The Fresh Market is a chain of healthy and organic foods grocery stores with more than  100 locations across 20 states. Essentially, it's a mini-Whole Foods … only cheaper. The stock trades at just 18 times forward earnings, versus 27.5 times forward earnings for Whole Foods' (Nasdaq: WFM) shares.

As interest in organics and local fresh foods has risen in recent years, The Fresh Market's sales have improved greatly. The company did $1.5 billion in revenue in its most recent fiscal year, up 14% from the previous year and 36% from two years ago.

SodaStream manufactures do-it-yourself soda and sparkling water makers. It gives customers a chance to make their own soda in a much cheaper and healthier way - without all the extra syrup and additives of Coke or Pepsi. Like The Fresh Market, SodaStream is benefiting from the move toward healthier food and beverage options. Sales have increased 26% in the last year.

Lately, however, SodaStream's shares have hit the skids. The stock has fallen 12.5% in the last year as earnings have plummeted 91% year over year. Plus, Coca-Cola's ( KO ) new deal with Green Mountain Coffee Roasters (Nasdaq: GMCR) to introduce a branded at-home soda-making machine later this year could offer SodaStream some stiff competition.

The Fresh Market, on the other hand, has been in business for more than 30 years and steadily expanding its national footprint in recent years. With EPS expected to increase 50% this year, the stock is well positioned for some serious growth.

Winner: The Fresh Market

Wearable Technology: Himax Technologies (Nasdaq: HIMX) vs. InvenSense (Nasdaq: INVN)

Wearable technology is one of the hottest new sectors on Wall Street.

The introduction of the Google Glass has helped send Google (Nasdaq: GOOG) shares to an all-time high well above $1,100. Meanwhile, rumors of a wearable " iWatch " have helped keep Apple (Nasdaq: AAPL) shares afloat of late.

But it's the companies that manufacture and supply the larger companies with that wearable technology that are really seeing a sizable bump.

Himax Technologies is a key supplier for Google Glass, and investors have taken notice: the stock is up 153% in the last year. And Google hasn't even introduced the Glass to the general public yet. If the Google device is the commercial success analysts are expecting - some project the Glass will be a $10.5 billion market by 2018 - Himax's shares could really take off.

InvenSense's products are already all around us. The company's motion-tracking sensors are used in smartphones, tablets, gaming devices, digital cameras and Smart TVs. They're also used in wearable devices such as pedometers, golf and tennis swing analysis tools and remote patient monitoring.

Both companies are growing fast with the rise of wearable technologies. But InvenSense's more diverse product portfolio gives it the slight edge.

Winner: InvenSense

There you have it: our Elite Eight - eight stocks with a chance to become the next Netflix.

Check back tomorrow when we unveil our Final Four.

Until then…

Editor's Note:  Next week, Ian Wyatt is investing $10,000 in the winning stock of our financial March Madness - the stock with 5-bagger potential he's calling the "Next Netflix." And you can join him! You see, he's revealing all the details of this stock and providing a full analysis of its business in a brand new report that's being released just after the market opens on Tuesday, April 1st. To make sure you get your hands on this report - for FREE! - the instant it's published… click here for all the details.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: LOCK , KO

Wyatt Investment Research

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