4 Undervalued Growth Stocks to Add to Your Portfolio

NYSE: MCK | McKesson Corporation  News, Ratings, and Charts

MCK – While the technology-driven market rally last year amid the COVID-19 pandemic drove the valuations of most growth stocks to lofty levels, there are still some stocks that possess solid growth attributes and are relatively undervalued. McKesson (MCK), AGCO (AGCO), BJ’s Wholesale Club (BJ), and Netgear (NTGR) are cases in point. We think these four undervalued stocks could deliver solid returns based on their revenue and earnings growth. Let’s discuss.

While the overall stock market saw an exceptional rally in the wake of a slump last March, growth stocks, particularly those from the technology sector, have performed  especially well thanks to new business trends driven by the pandemic. This is evident in the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) more than 80% returns since hitting its 52-week low in March 2020.

Most growth stocks are now trading at lofty valuations. And while analysts expect a coronavirus vaccine-driven economic recovery to lead to a market rotation away from growth stocks to value stocks, many investors are still willing to pay a premium for the growth stocks based on their growth potential. Nevertheless, the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 14.3% returns over the past three months versus the SPYG’s 11.6% suggests that investors have begun shifting their investments from growth stocks to value stocks.

So, this suggests that it could be a good idea now to bet on stocks that are relatively undervalued now but possess some growth attributes. This strategy could help one benefit from both a potential turnaround and continued growth.

McKesson Corporation (MCK), AGCO Corporation (AGCO), BJ’s Wholesale Club Holdings, Inc. (BJ), and Netgear, Inc. (NTGR) have recorded double-digit gains over the past year but are still trading at low valuations considering their growth potential.

McKesson Corporation (MCK)

MCK delivers  management and organizational solutions to hospitals, clinics, pharmacies, and pharmaceutical companies. The company helps clients improve their financial, operational, and clinical performance. MCK’s stock has gained 24.7% over the past year.

MCK has recently been involved in distributing Moderna’s COVID-19 vaccine as part of Operation Warp Speed. MCK is also collaborating with TailorMed, to help healthcare seekers overcome financial barriers to medical care.

For the quarter ended December 31, 2020, the company saw a 6% increase in revenue year-over-year. Its diluted EPS gained 21% during the same period. MCK’s revenue has grown  at a CAGR of 5% over the past three years.

MCK is expected to see revenue growth of 3.9% for the quarter ended March 31, 2021 and 3.8% in 2021. Its  EPS is estimated to grow 15% in 2021 and at a rate of 10.6% per annum over the next five years.

In terms of non-GAAP forward price/earnings, MCK is currently trading at 11.32x, 57.2% lower than the industry average of 26.44x. Moreover, in terms of forward price/sales, MCK is trading at 0.12, which is 98.7% lower than the industry average of 9.49x.

MCK’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has an overall rating of A, which equates to Strong Buy in our proprietary ratings system. It has a grade of A for Growth. In the 76-stock Medical – Services industry, it is ranked #2.

In total, we rate MCK on eight  different levels. Beyond what we stated above, we have also given MCK grades for Stability, Sentiment, Momentum, Quality and Value. Get all MCK ratings here.

AGCO Corporation (AGCO)

AGCO is involved in developing, manufacturing, and marketing agricultural machinery. The company’s range of products includes tractors, hay tools, and forage equipment. AGCO’s stock price has increased 66.6% over the past year.

AGCO is partnering with Universal Technical Institute to offer an agricultural manufacturer training program. The company has released a new feature on its  Valtra Connect platform that enables farmers to foresee service needs.

For the quarter ended December 31, 2020, AGCO reported an 8.1% increase in net sales versus the same period last year. The company’s full-year operating margin was 7% compared to 5.9% in 2019. AGCO’s revenue has grown at a CAGR of 4.4% over the past three years.

AGCO’s revenue is estimated to increase 10.2% for the quarter ended March 31, 2021 and 6.7% in 2021. The company’s EPS is expected to rise 14.6% in 2021 and 16.2% per year over the next five years.

In terms of non-GAAP forward price/earnings, AGCO is currently trading at 16.59x, which is 26.4% lower than the industry average of 22.53x. Moreover, in terms of forward price/sales, AGCO is trading at 0.88, 41.9% lower than the industry average of 1.52x.

It is no surprise that AGCO has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. AGCO has a grade of A for both Growth and Value. In the 32-stock Agriculture industry, it is ranked #2.

Click here to see the additional POWR Ratings for AGCO (Quality, Stability, Momentum, and Sentiment).

BJ’s Wholesale Club Holdings, Inc. (BJ)

BJ operates warehouse clubs and gas stations in the U.S.  The company’s warehouse clubs sell office supplies, electronics, home equipment, sports equipment, and more. BJ’s stock has returned 98% over the past year.

The company recently opened its newest club in Long Island City, NY., and has announced the opening date for its club in Newburgh, NY.

BJ’s revenue is expected to grow 13.5% for the quarter ended January 31, 2021 and 16.8% in 2021. Its  EPS growth is expected to be 108.2% in 2021 and 21.8% per annum over the next five years.

In terms of non-GAAP forward price/earnings BJ is currently trading at 15.09x, which is 25.7% lower than the industry average of 20.33x. In terms of forward price/sales, BJ is trading at 0.38, which is 75.6% lower than the industry average of 1.54x.

BJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary ratings system. BJ has a grade of A for both Growth and Value. In the 41-stock Grocery/Big Box Retailers industry, it is ranked #21.

Beyond what we stated above we also have given BJ grades for Stability, Momentum, Quality, and Sentiment. Get all the BJ ratings here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

 

Netgear, Inc. (NTGR)

NTGR offers a range of technological devices, including network attached storage solutions, security cameras, and home automation devices. NTGR’s stock has gained 53.8% over the past year.

NTGR  recently launched its Nighthawk RAXE500 Tri-band WiFi router, which is the world’s first all-purpose Wi-Fi 6E router. The company has also introduced new 4G and 5G mobile wireless solutions for more-reliable internet connectivity.

For the quarter ended December 31, 2020, the company reported an increase in net revenue of 45.1% compared to the same period last year. Its operating margin increased to 9.2% from 8.5% during the year-ago quarter, and its  revenue has grown at a CAGR of 6.5% over the past three years.

NTGR is expected to see a revenue growth of 35.4% for the quarter ended March 31,2021 and 7.5% in 2021. Its  EPS is estimated to grow 12.2% in 2021 and 54.8% per annum over the next five years.

In terms of non-GAAP forward price/earnings, NTGR is currently trading at 12.25x, which is 54.4% lower than the industry average of 26.9x. In terms of forward price/sales, BJ is trading at 0.89, which is 78.2% lower than the industry average of 4.08x.

It is no surprise that NTGR has an overall rating of B, which equates to Buy in our POWR Ratings system. NTGR has a grade of A for both Growth and Value. In the 57-stock Technology – Communication/Networking industry, it is ranked #9.

Click here to see the additional POWR Ratings for NTGR (Sentiment, Quality, Stability, and Momentum).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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MCK shares were trading at $185.56 per share on Friday morning, down $0.51 (-0.27%). Year-to-date, MCK has gained 6.69%, versus a 3.59% rise in the benchmark S&P 500 index during the same period.


About the Author: Aaryaman Aashind


Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...


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