When markets panic-sell, individual investors typically abandon undervalued high-growth stocks, too. They lump inexpensive companies along with the overpriced ones. This is a common mistake. Markets will eventually reward patient investors who differentiate undervalued stocks that also offer high future growth.
There undervalued high-growth stocks represent various sectors. In the technology sector, Applied Materials (NASDAQ:AMAT) scores 85/100 or higher on value, growth and quality scores according to StockRover.
In the retail sector, Target’s (NYSE:TGT) earnings in the last quarter disappointed investors. Still, Target earned strong stock scores.
Walmart (NYSE:WMT) trails Target but still offers strong growth. Best Buy (NYSE:BBY) also has a high value with a 92/100 score.
Collectively, a basket of these stocks should reward investors. The average quality, value, and growth score are at least 83/100. Instead of timing an entry point by waiting for a dip, investors may initiate positions in these consistently strong companies. Some of the firms have upcoming catalysts that will unlock their value.
These undervalued high-growth stocks are worth your time.
| AMAT | Applied Materials | $105.98 |
| BBY | Best Buy | $76.99 |
| CVS | CVS Health | $95.68 |
| MDLZ | Mondelez International | $64.04 |
| TGT | Target | $163.38 |
| UPS | United Parcel Service | $194.89 |
| WMT | Walmart | $132.06 |
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) has strong orders and an increasing backlog. When the supply chain improves, customers will take delivery of its products. This will increase the company’s profits, so AMAT stock is undervalued until its supply chain constraints ease.
Applied Materials has more than two quarters of backlog to work through. It should therefore increase its output to bring down the backlog. From an accounting point of view, shipments that are missing a few components will not count as sales. Shareholders should expect a potential revenue beat shortly.
In addition, in the current quarter, expect demand to accelerate despite fears of a recession. Customers are committed to their orders.
Applied Materials has a good understanding of its customer’s building plans. It is working closely with them to fulfill orders as the bottleneck in components eases.
According to simplywall.st, AMAT stock has a healthy balance sheet and good past performance. The site reports an earnings growth forecast of 5.32% annually.
Best Buy (BBY)
Best Buy is the strongest retailer in the electronics business. The company is expanding its addressable market in two ways. First, it is offering an expanded assortment of health solutions. Second, it sells totaltech, a $199.99 per year membership. Customers get technology support 24/7/365, and longer product protection of up to 24 months.
Most importantly, they can get free delivery and installation for new purchases.
Best Buy has the option to increase promotions to drive revenue growth. Still, it must balance promotional efforts with sales to customers with good credit. But due to the PC slowdown recently, the retailer could continue promotions for computing products. That would lower inventory levels and increase revenue.
Best Buy needs to bounce back from a retail sales slowdown in the first quarter. and looking ahead, a recession looms.
Best Buy will need to optimize its product mix, promoting categories that resonate the best with consumers. It may leverage vendor relationships to get the latest and greatest products.
CVS Health (CVS)
CVS Health (NYSE:CVS) does not have to worry about Amazon (NASDAQ:AMZN) buying out One Medical. One Medical is a membership-based primary care platform. Conversely, CVS Health relies on growing the market share of its primary care business.
CVS changed HealthHUB. It expanded MinuteClinic health services and increased pharmacy support. In addition, it offers thousands of wellness products. While Amazon relies on an online approach to growth, CVS offers customers face-to-face services.
Furthermore, when Amazon bought Whole Foods, customers did not stop going to other grocery stores. Similarly, CVS is unlikely to face any near-term slowdown in its business.
Investors should expect CVS earnings growth to increase by up to 2% starting in 2024. It has new care delivery models. It will broaden its earnings through its omnichannel pharmacy, subscription offerings, and virtual care. For now, CVS is committed to meeting its EPS targets. It could further acquire inexpensive targets in the future.
Before CVS enters any merger and acquisition activities, though, it may use its cash to buy back stock. This offsets dilution from stock-based compensation. It currently pays a dividend yield of 2.3%
Mondelez International (MDLZ)
Mondelez International (NASDAQ:MDLZ) increased its revenue potential after buying Clif Bars for $2.9 billion. Clif Bar is a supplier of energy bars with organic ingredients, is strategically important.
With this, Mondelez will expand its snack bar business to over $1 billion. It should work well alongside Perfect Snacks, its refrigerated snacking business, or Grenade, which operates in the U.K. and supplies people with performance nutrition products.
Mondelez expects Clifs will contribute to its top-line results and will realize cost synergies. This might mean cost cuts. Still, Clifs will increase its sales volumes by leveraging the Mondelez sales distribution channels.
The company will also promote Clifs to its existing and new customers in the U.S.
Mondelez is cautious about Europe’s business condition. Inflation could hurt consumer demand. Luca Zaramella, the company’s CFO, said that European customers are historically susceptible to negative sentiment. In addition, Russia’s invasion of Ukraine is a shadow over the region.
Strong demand from the U.S. consumer offsets the European headwinds. In the emerging market, Mondelez experienced stronger growth than usual. It raised prices, heavily in Latin America, yet volume growth remained strong.
Target (TGT)
Target is out of favor. In the first quarter, the retailer’s first-quarter margins did not meet internal expectations.
Target underperformed due to a sudden shift in macroeconomic headwinds, leading to a shift in consumer behavior. For example, transportation costs rose at a higher rate. Target’s sales mix did not resonate with its customers. This led to excess inventory, especially in the category of bulky items.
Investors will need to wait for Target to work through a slowdown in three core merchandise categories: homes, hard lines, and apparel. All three are down since March 2022. In a post-stimulus slowdown scenario, consumers demand more services than goods.
Target will pivot away from bulky items like large appliances, outdoor furniture and TVs. It will sell items connected to travel, out-of-home activities and social gatherings. Although the risk is currently low, a future resurgence in Covid-19 could undermine Target’s ideal product mix.
Target has a highly favorable valuation compared to its peers.
United Parcel Service (UPS)
United Parcel Service (NYSE:UPS) runs a healthy transport business. The economic slowdown may hurt shipment volumes, but UPS stock already trades at a low price-to-earnings multiple in the mid-teens. This is inexpensive for a firm that does well during recessions. Businesses will buy fewer goods, so UPS will increase its truckload while cutting frequency. This will sustain operating profits.
Analysts polled by TipRanks have an average price target of over $208, meaning upside of over 7%.
UPS does not have a clear catalyst that will convince investors to buy the stock now, but the delivery business is flourishing regardless of the economy’s health.
In the first quarter, UPS raised its targeted share repurchase plan to $2 billion for 2022. The company will likely take advantage of any share price weakness to buy and cancel shares.
Now, UPS is not immune to inflation. Higher costs will have a potentially negative effect on its business. Investors should watch for signs of margins shrinking. That would give bearish investors a reason to assign a lower valuation multiple.
Walmart (WMT)
Walmart operates in more than 20 countries, giving investors an international giant and a digital e-commerce firm. It has stores in over 20 countries, including Canada, Mexico, India and China, and the intranational segment achieved an 18% e-commerce penetration last quarter. This accounted for $4 billion in EBIT.
Walmart struggled with excess inventory as well — inventory increased by 32% in the U.S. at the end of the quarter. The company stocked up on goods in anticipation of strong apparel and electronics demand, but the rapid rise in interest rates shifted consumer behavior. Fortunately, Walmart has plenty of warehouse real estate to store the goods, so it will not necessarily need to sell them at a steep discount.
In the second half of the year, the company will depend on consumer demand for food. With lower disposable income due to higher costs, the retailer can offer value on everyday goods. When the economy improves, operating margins will expand again.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.