The broader market has largely recovered from the virus-driven crash over the past five months, which is one of the fastest market recoveries in history. Several stocks in the index are hitting all-time highs as we speak. The market is being driven by mega-cap technology companies benefiting from work from policies, and accommodative fiscal and monetary policies.
While the S&P 500 is up almost 51% since March 23rd, many companies are still trading cheap according to various valuation metrics. The price to earnings ratio (P/E) is one of, if not, the most recognizable valuation metrics used by investors today. A stock with a P/E below 15 is typically considered undervalued.
As the current bull market is expected to continue by some, it might be a good idea to look at a few growth stocks still trading cheap. Renewable Energy Group, Inc. (REGI), Artisan Partners Asset Management Inc. (APAM), and MDC Holdings, Inc. (MDC) have some upside left based on their earnings and revenue growth potential and low P/Es.
Renewable Energy Group, Inc. (REGI)
REGI produces and markets biofuels and renewable chemicals in the US. The company operates 13 biorefineries along with a feedstock processing facility. REGI could be a company poised for long-term growth considering that renewable energy is the future of the energy industry. Over the last three years, REGI has moved from being a loss-making company to a profitable one.
Despite the demand for transportation fuels drastically reducing due to the coronavirus, the company saw stable demand for its diesel fuel. The company is conducting research on improving its product mix, which could lead to a superior fuel. In the second quarter, the company produced 132 million gallons of biodiesel and renewable diesel which marked an increase of 4% from the last quarter.
The PE Ratio of REGI is significantly low at 3.1 which could indicate that the stock is currently undervalued. The company has delivered a positive earnings surprise of 107.4% for the quarter ending June 30th. The EPS growth for the company for next year is estimated to be 72.4%. Furthermore, it is estimated that the revenue of the company will increase by 11.3% next year. REGI is up 41.3% so far for the year.
REGI’s strong fundamentals are reflected in its POWR Ratings, as it is rated a Strong Buy, with a grade of A for Trade Grade, Buy & Hold Grade, and Peer Grade. Within the Energy – Services industry, it’s ranked #2 out of 60 stocks.
Artisan Partners Asset Management Inc. (APAM)
APAM is an asset management company that specifically caters to pension and profit-sharing plans, foundations, charitable organizations, trust endowments, private funds, collective trusts, and government entities. Analysts estimate that the EPS of APAM will grow by 13.5% in the current year and by 11.6% next year. The company’s revenue is estimated to grow by 11.3% next year. The company has also delivered a positive earnings surprise of 16.4% for the quarter ending June 2020.
The company’s three major investment verticals which include the Developing World Strategy, the Thematic Strategy, and the Non-US Small-Mid Growth Strategy, have all significantly outperformed their benchmark indices. APAM has admirably recovered from its March lows and has delivered returns of 73.1% since. The stock has also traded above its pre-coronavirus high of $38, which it reached in February.
APAM currently has a trailing twelve-month P/E 13.9, which is well below its industry average and the S&P 500. The stock is rated a Strong Buy in our POWR Ratings system. It also has a grade of A for Trade Grade, Buy & Hold Grade, and Peer Grade. In the 45-stock Asset Management industry, it is ranked #4.
MDC Holdings, Inc. (MDC)
MDC is a homebuilding company that also engages in originating mortgage loans. The housing market is facing a strong recovery with home sales in July increasing by 25% as compared to the previous month. The average selling prices are also at all-time highs. The company reported strong performance for the quarter ending June 30. MDC saw an expansion in net income of 55% due to significant revenue growth along with better margins. The company attributed this increase in revenue to low interest rates and solid consumer demand.
Unit deliveries of the company increased by 25% as compared to the last year, which drove the revenue growth. The company also expects to make between 1900 to 2100-unit deliveries in the next quarter, which could lead to more strong performance. It is estimated that the company will see revenue growth of 22% for the quarter ending September 2020. Expected revenue growth for the next year is 16%. The company’s stock price has recovered from the crash caused by the coronavirus and has delivered a year-to-date return of 18.9%.
The stock has a current P/E of 10.9, which means it can be bought at a value price. MDC is rated a Strong Buy in our POWR Ratings system. It also has a grade of A for Trade Grade, Buy & Hold Grade, and Industry Rank. In the 21-stock Homebuilders industry, it is ranked #8.
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REGI shares were trading at $36.60 per share on Wednesday afternoon, down $1.48 (-3.89%). Year-to-date, REGI has gained 35.81%, versus a 9.09% 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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