Growth stocks soared in 2020, with tech shares leading the way. The SPDR S&P 500 Growth ETF (SPYG) gained 78.3% from March 23rd to December 31st. When investors learned of the efficacy of the coronavirus vaccines at the end of the year, a rotation out of growth stocks took place in the market, as a rapidly improving economy benefits more cyclical and value names.
But it appears growth stocks are back in favor as the SPGY gained 6.8% last month. The value trade is taking a breather as improving economic conditions look already priced in. With many of the top growth stocks seeing their shares pullback in the winter, now is a great time to invest in growth at a lower valuation. This way, we get the best of both worlds.
So, I ran a screen for top undervalued growth stocks in our POWR Rating system for Buy-rated stocks with a Growth Grade of A or B and a Value Grade of A or B. This makes sure we see the best growth stocks at low valuations, and why I am recommending investors consider Johnson & Johnson (JNJ), Target Corporation (TGT), Dell Technologies Inc (DELL), Agilent Technologies, Inc. (A), and Goldman Sachs Group Inc. (GS) for the second quarter.
Johnson & Johnson (JNJ)
JNJ is one of, if not the most recognizable, names in healthcare. The company is well known for providing pharmaceuticals, medical devices, as well as consumer health products. The company has generated further interest by being of the providers approved for the COVID-19 vaccine. JNJ’s pharmaceutical segment makes up close to 50% of total revenue. The pharmaceuticals division also has the best future growth potential.
For instance, the company offers several industry-leading drugs. This includes immunology drugs such as Remicade, Stelara, and Tremfya and cancer treatments Darzalex and Imbruvica. Plus, many of its key drugs and pipeline drugs are specialty treatments with strong pricing power and lower regulatory hurdles for approval. The company also has a significant market share in the medical device industry with orthopedic and Ethicon Endo-Surgery’s surgical devices.
JNJ has an overall rating of A, which translates into a Strong Buy in our POWR Ratings system. The company has a Growth Grade of B, which isn’t surprising as earnings have grown an average of 130.7% per year over the past three years. Earnings are expected to rise 35.3% year over year in the current quarter, and revenues are forecasted to grow 25.9% over the same time frame.
JNJ also has a Value Grade of B. The stock currently has a forward P/E of only 17.12 and is trading 14% below its average analyst price target. We also provide grades Momentum, Stability, Sentiment, and Quality grades for JNJ. You can find those here. JNJ is ranked #1 in the Medical – Pharmaceutical industry. You can see other top stocks in this industry by clicking here.
Target Corporation (TGT)
TGT is just about as well-known as JNJ and is one of the largest discount retailers in the country. The company currently has around 1,900 stores in the U.S. It has been focused on increasing the appeal of its store through enhancing its digital capabilities and expanding its same-day fulfillment options. In its most recent quarterly report, the company reported market share gains in all of its merchandise categories (Apparel, Beauty, Electronics, Essentials and Food & Beverage) due to strong demand
The company is benefiting from a trend in consumers shopping at discount stores. This is expected to continue for some time. Its same-day services such as Drive Up & Pick Up are bringing more customers. Plus, its partnerships should enhance its product selection. One example is its partnership with Ulta. The company is also increasing its private-label offerings and its Food & Beverage segment. Both should aid growth.
TGT has an overall grade of A, which is a Strong Buy Rating in our POWR Ratings system. The company has a Growth Grade of B and a Value Grade of B. This indicates that its growth potential is not only strong, but the stock is trading at an attractive valuation. In the most recent report quarter, earnings rose 58% year over year, and revenue increased 20%. Earnings are expected to soar 252.5% in the current quarter.
The stock is also trading at a low valuation. Its price-to-cash-flow ratio is 13.6, which is much lower than the industry average. Plus, its EV/EBITDA is 12.4, also below the industry average. To access the rest of TGT’s grades (Momentum, Stability, Sentiment, and Quality), click here. TGT is ranked #3 in the A-rated Grocery/Big Box Retailers industry. For more top stocks in that industry, click here.
Dell Technologies Inc (DELL)
While many investors and consumers know DELL from their well-known computer products, the company also is a top vendor of IT infrastructure products and services. This is due to its 2016 acquisition of EMC. The company reported great fourth-quarter results in February, beating analyst estimates in both earnings and revenue.
The quarter’s strength was driven by the trend toward digitalization, remote working, and cloud-based infrastructure. Since DELL is a supplier with an end-to-end IT infrastructure portfolio, the company can upsell services, which aid margins. Its proposed spinoff of VMware (WMW) will open more growth opportunities and generate more value for shareholders.
The company should also see strong demand for notebooks and its higher-margin gaming PCs. DELL has an overall grade of A, translating into a Strong Buy Rating in our POWR Ratings service. The company has a Growth Grade of A driven by analyst growth forecasts. Earnings are expected to increase 17.9% year over year in the current quarter after jumping 35% year over year in the last quarter.
The company also has a Value Grade of B. Its forward P/E is a paltry 11.89, and its price-to-sales ratio is only 0.8. We also grade DELL based on Momentum, Stability, Sentiment, and Quality. You can find those grades here. DELL is ranked #3 in the B-rated Technology – Hardware industry. You can find other top-ranked stocks in the industry by clicking here.
Agilent Technologies, Inc. (A)
A is a leading supplier of analytical instrumentation and consumable products used for research and quality assurance applications by customers in the life sciences, chemical analysis, and diagnostics industries. The company was originally spun out of Hewlett-Packard in 1999 and is now a leader in the Life Sciences industry.
The company is benefitting from growth in the pharmaceutical market driven by strong momentum in small and large molecule applications. A is also seeing strong demand in the food market. But the company’s key catalyst to growth is innovation. The company has consistently introduced new and improved products, which have gained customer loyalty and allowed the company to capture more market share.
A has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings. The company has a Growth Grade B, which isn’t surprising after a strong quarter. In its most recent reported quarter, earnings per share rose 30.8% year over year, while revenues increased 13.9%. Analysts forecast 16.9% year over year earnings growth in the current quarter.
A also has a Value Grade of B. The stock is currently trading over 40% below its average price target. Please click here for the rest of A’s grades (Momentum, Stability, Sentiment, and Quality). A is ranked #1 in the Medical – Diagnostics/Research industry. You can find other great stocks in this industry by clicking here.
Note that A is one of the current stocks in Jaimini Desai’s POWR Growth portfolio. Learn more here.
Goldman Sachs Group Inc. (GS)
GS is one of the most well-known investment banks in the world. The company provides investment banking, asset management, consumer and wealth management, and securities services. It has a leading position in Mergers & Acquisitions, equity underwriting, and equity trading. GS also generates significant revenue from its investing, lending, and FICC businesses.
The company had a solid first quarter as it benefited from robust capital markets performance. The company has a strong position in Mergers & Acquisitions, and the many deals in its pipeline should sustain growth in the months ahead. GS’s diversification into digital solutions such as its consumer lending platform Marcus by Goldman Sachs and its automated wealth-management platform Marcus Invest should also aid growth.
GS has an overall grade of B or a Buy rating in our POWR Ratings system. It has a Growth Grade of B, indicating strong growth potential. In the recently reported quarter, earnings were up a whopping 498.1% year over year, and revenue rose an equally impressive 102.5%. Earnings are forecasted to grow an insane 1,679% year over year in the current quarter.
Those growth figures are all the more intriguing as GS has a trailing P/E of 8.7 and a forward P/E of 10.73. Its price-to-sales ratio of 2.4 is also below the industry average. We also provide Momentum, Stability, Sentiment, and Quality grades for GS, which you can find here. GS is ranked #1 in the Investment Brokerage industry. You can find other top stocks in the industry here.
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JNJ shares were unchanged in after-hours trading Friday. Year-to-date, JNJ has gained 7.73%, versus a 13.27% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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|A||Get Rating||Get Rating||Get Rating|
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