Even though investors rotated away from expensive growth stocks earlier this year, the solid economic recovery has been driving a renewed and increasing focus by investors on growth stocks given their ability to grow faster, capitalizing on supportive economic policies. The revival of investor interest in growth stocks is evident in the SPDR Portfolio S&P 500 Growth ETF (SPYG) and Vanguard Growth Index Fund ETF Shares’ (VUG) 3.4% and 4% gains, respectively, over the past month. This compares to the SPDR S&P 500 Trust ETF’s (SPY) 1.3% returns over the same period.
The United States’ gross domestic product (GDP) increased at a 6.4% annual rate in the first quarter of 2021. And according to The Conference Board, the U.S.’ real GDP is expected to rise 9% in the second quarter of 2021. Furthermore, even though the Federal Open Market Committee (FOMC) said on June 16 that at least two interest rate hikes are expected in 2023, interest rates have been left at near-zero for now.
So, we think it could be wise to bet on stocks that are still out of favor but possess solid growth attributes. We think Daimler AG (DDAIF), Regeneron Pharmaceuticals, Inc. (REGN), POSCO (PKX), and Covestro AG (COVTY) fit the bill. They are currently trading at discounts to their peers but hold immense growth potential.
Daimler AG (DDAIF)
Headquartered in Stuttgart, Germany, DDAIF develops and manufactures passenger cars, trucks, vans, and buses internationally. It operates through several segments, including Mercedes-Benz Cars & Vans, Daimler Trucks and Buses, and Daimler Mobility segments. The company also sells vehicle-related spare parts and accessories.
On February 3, 2021, DDAIF announced its plans to evaluate a spin-off of its truck and bus business and begin preparations for a separate listing of Daimler Truck. This initiative is expected to help DDAIF focus more on its core group, such as its Mercedes-Benz Cars segment, and make necessary advancements in relevant technologies to accelerate its growth.
DDAIF’s revenue surged 10.2% year-over-year to €41.02 billion ($49.60 billion) in the first quarter, ended March 31, 2021. Its EBIT grew 831.6% year-over-year to €5.75 billion ($6.95 billion). Its net profit came in at €4.37 billion ($5.29 billion), which represents a 2,503% year-over-year increase. The company’s EPS was €4.01 ($4.85), up 4,355.5% year-over-year.
In terms of forward non-GAAP PEG, DDAIF’s 0.34x is 74.5% lower than the 1.33x industry average. In terms of forward GAAP P/E, the stock’s 6.17x is 66.6% lower than the 18.51x industry average.
Analysts expect DDAIF’s EPS and revenue to increase 274.7% and 56.4%, respectively, year-over-year to $3.86 and $51.95 billion for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 128.3% over the past year to close yesterday’s trading session at $94.74.
It’s no surprise that DDAIF has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for growth, and a B grade for Value, Sentiment, Stability and Momentum. Click here to see DDAIF’s ratings for Quality as well. DDAIF is ranked #2 of 57 stocks in the Auto & Vehicle Manufacturers industry.
Regeneron Pharmaceuticals, Inc. (REGN)
REGN discovers, invents, develops, manufactures, and commercializes medicines for treating various medical conditions worldwide. It has collaborations with Zai Lab Limited (ZLAB), Intellia Therapeutics, Inc. (NTLA), and Biomedical Advanced Research Development Authority, as well as an agreement with the U.S. Department of Health and Human Services.
REGN announced positive results on June 16, 2021, regarding its REGEN-COV. It found that the therapy reduced the risk of death by 20% in patients hospitalized with COVID-19 who had not mounted their own immune response. The company also announced that it will share the new data with regulatory authorities immediately and request that a U.S. EUA be expanded to include appropriate hospitalized patients.
The company’s revenue increased 38% year-over-year to $2.53 billion for fiscal first quarter ended March 31, 2021. Its income from operations grew 58.9% year-over-year to $1.11 billion, while its non-GAAP net income increased 44% year-over-year to $1.11 billion. The company’s non-GAAP EPS increased 50% year-over-year to $9.89.
In terms of forward GAAP P/E, REGN’s 11.54x is 63.4% lower than the 31.51x industry average. In terms of forward EV/EBIT, the stock’s 9.21x is 55.9% lower than the 20.91x industry average.
For the current quarter, ending June 30, 2021, analysts expect REGN’s EPS to increase 151% year-over-year to $17.97. It surpassed the Street’s EPS estimates in each of the trailing four quarters. REGN’s annual revenue is expected to be $12.16 billion in its fiscal year 2021, which represents a 43.1% year-over-year rise. The stock has surged 8.6% over the past three months to close yesterday’s trading session at $523.58.
REGN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Growth and Value, and a B grade for Sentiment and Quality.
Headquartered in Pohang, South Korea, PKX manufactures and sells steel rolled products and plates internationally. It operates through four segments: steel, construction, trading, and others. The company’s offerings include hot and cold rolled steel, stainless steel, plates, wire rods, and silicon steel sheets, among others.
PKX announced on March 31, 2021, that it will supply 26,000 tons of steel plates to the construction of commercial facilities built by Shinsegae Eng. & Construction Co., Ltd. This contract is expected to increase PKX’s revenues.
PKX’s revenue climbed 11.9% year-over-year to KRW16.07 billion ($14.21 million) for its fiscal first quarter ended March 31, 2021. Its operating earnings grew 13.9% year-over-year to KRW1.55 billion ($1.37 million). The company’s net earnings increased 161.8% year-over-year to KRW1.14 billion ($1 million).
In terms of forward EV/EBITDA, PKX’s 3.74x is 55.8% lower than the 8.44x industry average. In terms of forward GAAP P/E, the stock’s 8.48x is 48.9% lower than the 16.59x industry average.
Analysts expect PKX’s EPS to increase 174.1% year-over-year to $8.96 in 2021. Its revenue is expected to increase 104.6% year-over-year to $59.64 billion in 2022. The stock has gained 103.8% over the past year to close yesterday’s trading session at $76.01.
PKX’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system.
The stock has an A grade for Growth and Value, and a B grade for Momentum, Stability and Sentiment. Within the A-rated Steel industry, PKX is ranked #3 of 34 stocks.
To see PKX’s rating for Quality, click here.
Covestro AG (COVTY)
Based in Leverkusen, Germany, COVTY develops, produces, and markets polymer materials for various industries. The company operates in three segments: polyurethanes, polycarbonates, and coatings, adhesives, specialties (CAS). It markets its products through trading houses and distributors and operates across several regions, including Europe, the Middle East, Africa, and the United States.
COVTY completed its acquisition of the Resins & Functional Materials business (RFM) from the Dutch company Royal DSM on April 1. Dr. Markus Steilemann, the company’s CEO said, “With this transaction, we are taking another important step towards sustainability, while at the same time generating sustainable growth.”
COVTY’s sales soared 18.8% year-over-year to €3.31 billion ($4 billion) in the first quarter, ended March 31, 2021. Its EBIT grew 729.8% year-over-year to €556 million ($672.34 million). Its income after income taxes came in at €395 million ($477.65 million), which represents a 1,780.9% year-over-year increase. The company’s EPS was €2.03 ($2.45), up 1,745.4% year-over-year.
In terms of forward non-GAAP PEG, COVTY’s 0.36x is 76.6% lower than the 1.52x industry average. In terms of forward Price/Cash Flow, the stock’s 4.14x is 58.3% lower than the 9.94x industry average.
In fiscal 2021, analysts expect COVTY’s EPS to increase 117.2% year-over-year to $3.28. Its revenue is expected to be $4.44 billion for the current quarter, ending June 30, 2021, which represents a 77.6% year-over-year rise. The stock has surged 74.6% over the past year to close yesterday’s trading session at $32.39.
COVTY’s POWR Ratings reflect its solid prospects. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. It has an A grade for Growth, Value and Momentum, and a B grade for Stability and Quality.
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DDAIF shares were trading at $95.24 per share on Thursday morning, up $0.50 (+0.53%). Year-to-date, DDAIF has gained 35.48%, versus a 13.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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