The window to buy undervalued high-growth stocks is narrowing. Whenever major indices like S&P 500 (NYSE:SPY) fall, bargain hunters, step in. They are scooping up discounted American firms for the long term. By taking advantage of the short-lived dips, investors will average down their price paid.
Buy-and-hold investors have a very long timeframe for stocks. Inflation, higher interest rates, risks of war and de-globalization are the many worries for markets. This is increasing volatility in stock markets and reducing the opportunity to find the right undervalued high-growth stocks to buy.
Markets discount a company’s stock price when they demand a higher margin of safety. Firms that enter a slowdown period, due to weaker demand, will under-perform the average. Still, the company will work down its product inventory and cut costs. When profit margins increase, investors will flock back to the stock. Buying these undervalued high-growth stocks now will provide you an advantage.
| AMAT | Applied Materials | $92.37 |
| BBY | Best Buy | $68.01 |
| CVS | CVS Health | $100.40 |
| MDLZ | Mondelez International | $64.12 |
| TGT | Target | $159.16 |
| UPS | United Parcel Service | $167.75 |
| WMT | Walmart | $141.75 |
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) supplies equipment and services associated with semiconductor chip manufacturing. Investors dumped AMAT stock throughout this year, worried about macroeconomic headwinds. In addition, the supply chain disruption is slowing Applied’s growth rate.
Long-term investors should accumulate AMAT stock. The semiconductor market will grow in the mid-to-high-single-digits. The industry is worth $1 trillion by 2030. Applied’s customers have high capital intensity. They will always need wafer fab equipment. Expect the company to post free cash flow growth as it rebounds from the weak market conditions.
In 2023, Applied Materials will benefit from its heavy investments in panel processing and packaging. It has capabilities in wafers and larger substrates. Applied will realize growth from early investments during the bull phase of the chip cycle. This year, it reduced its spending. By cutting the cost of goods sold and operating expenses, the company maintained positive free cash flow.
The semiconductor firm pays $1.04 a share in dividends.
Best Buy (BBY)
Best Buy (NYSE:BBY) is an electronics specialty retailer. Management skillfully kept inventory at healthy levels. It will not need to sell goods at a steep discount to clear those goods.
Best Buy has inventory in the gaming console, PC gaming, and virtual reality. Fortunately, those are all popular areas that consumers want. As Best Buy enters the holiday period, chances are good that its supply will meet that of consumer demand.
Suppliers will keep innovating their products. Although consumers might struggle with lower disposable income, they cannot delay upgrading their technology for too long. Best Buy is the first place they will visit to fulfill that need.
Compared with online retailers, this firm has competent sales staff. Totaltech support also gives customers reassurance. Should they require help, they may count on this retailer.
To fuel its growth, Best Buy has experimental stores spread geographically. It is testing markets to optimize its store portfolio. This will lift same-store sales in future quarters making it one of the best undervalued high-growth stocks.
CVS Health (CVS)
CVS Health (NYSE:CVS) reported strong revenue and adjusted operating growth. It also raised its adjusted earnings per share guidance for the full year. Importantly, CVS increased its cash flow from the operations guidance range. This gives it the option to hike its dividend of $2.20 a share, or 2.21% annually. Alternatively, it could pay down its debt or buy back more shares.
CVS stock could trade at new highs if it returned capital to loyal shareholders. Instead, the company is determined to fuel its growth by acquiring companies. The strategy works if it is buying deeply discounted targets. Until asset values for targets fall, CVS investors deserve a higher dividend instead.
In 2023, CVS will have capital expenditure levels similar to that of this year. In addition, it will have similar cash flow levels. Markets would likely bid the stock higher if CVS built its cash levels on hand. By 2024, unprofitable target acquisitions might sell themselves at a big discount.
Mondelez International (MDLZ)
Mondelez International (NASDAQ:MDLZ) rallied after posting revenue growing by 8.1% Y/Y to $7.76 billion. It raised its organic net revenue growth outlook. It expects growth of 10% or higher.
MDLZ stock trades at a seemingly high forward P/E of 21.6 times. However, it earned the premium. It posted strong top-line performance, driven by resilience in its categories. Consumers want to consume more chocolate and biscuits.
In the emerging market, Mondelez said that the emerging markets lifted its results. For example, it benefited from broad-based strength from China to India to Brazil. Conversely, customer disruptions hurt its Europe operations. When inflation rates ease in Europe, Mondelez will post a rebound in margins.
Mondelez enjoys a strong moat in the food industry. Consumers cannot live without chocolate. They will allocate some of their grocery budgets to keep buying this affordable indulgence.
The company has the flexibility to raise product prices. If input costs rise, it will pass the higher costs to customers. They will willingly pay. Investors should buy MDLZ stock on any pullback.
Target (TGT)
Target (NYSE:TGT) is a retailer that continues to manage its inventory as demand weakens. Still, category trends changed earlier this year. Customers altered their spending habits but still shop in-store and online at Target.
In the back half of the year, Target has multiple seasonal strengths. The winter holiday celebrations will drive sales higher. Investors should watch for Target’s operating margins to hold around 7%. Last year, it posted margins of 6.8%, and 6.5% the year before that.
Earlier this year, freight costs and elevated fuel prices hurt Target’s profitability. Today, inventory is likely lower while freight costs are down. Energy prices are not rising as fast as they once did. This will lower the firm’s input costs. It also increases the disposable income of Target’s customers.
The supply chain constraint is not likely an ongoing issue. The company’s management team worked through those issues in a short period. This limited the damage to the business making it one of the undervalued high-growth stocks to keep on your radar.
United Parcel Service (UPS)
United Parcel Service (NYSE:UPS) posted a good quarter. Its revenue grew by 4.2% year over year to $24.2 billion in Q3. It expects to achieve an adjusted operating margin of 13.7% this year.
UPS stock is a buy because the company will pay dividends worth $5.2 billion. It will also buy back at least $3 billion worth of stock. These actions will limit the downside risks in the stock.
UPS will find around $300 million worth of productivity in the back half of the year. As a result, it will improve the delivery firm’s performance efficiencies. By tracking packages effectively and delivering them on or ahead of schedule, UPS will cut overtime hours. This will lower the company’s drive and staff costs.
UPS has an appealing service compared to its competitors. For example, it offers a 7-day residential service. It also offers Saturday pickup for its business customers. This resulted in long-term revenue growth and market share expansion.
Walmart (WMT)
Walmart (NYSE:WMT) is addressing its bloated inventory issues. The strong uptrend in WMT stock since it bottomed in May suggests that shareholders are confident it will not hurt results.
Furthermore, profitability expansion is achievable. The company will price its goods to reflect its cost structure.
Walmart enjoys a strong brand name that draws customers to its stores. Both Walmart and Sam’s Club are recognized globally. This lowers its risk of relying solely on the U.S. for its strong performance. To strengthen its online presence, Walmart is investing in its e-commerce unit. It takes its digital transformation seriously.
Investors should expect Walmart to grow its marketplace, despite the short-term pressures it faces. Fortunately, its online competitors are stumbling. This gives the company a rare chance to take market share.
Just as supply chain constraints benefit the companies mentioned, Walmart will also see lower supply chain costs. Expect it to issue strong profit guidance when sales growth outpaces the rise in supply costs.
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.