The fierce bear market gives investors many undervalued high-growth stocks at fire-sale prices.
The stock market today is vastly different from the bull market that began in the 2010s and lasted until 2022. Investors are recognizing the risks that sharply higher interest rates will hurt stock valuations.
Markets dumped high-growth companies with poor prospects. Companies may no longer tout customer or revenue growth in the absence of profits. “Pre revenue” is now catch phrase that investors will avoid.
Unless a company’s operating loss is temporary, the stock will not attract buyers.
Investors demand undervalued high-growth stocks that compensate for the risk. They also need to grow from here. Leadership is the most telling attribute of a company’s ability to grow. A good boss will see the proverbial forest from the trees.
They will navigate the company beyond the current recession. Investors should buy stocks in those firms that will grow after the recession ends.
| AMAT | Applied Materials | $79.19 |
| BBY | Best Buy | $63.34 |
| CVS | CVS Health | $88.25 |
| MDLZ | Mondelez International | $55.62 |
| TGT | Target | $153.10 |
| UPS | United Parcel Service | $159.74 |
| WMT | Walmart | $129.32 |
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) guided investors to grow in the mid-single digit sequentially.
In its Q3/2022 report, the company said that it will report net sales of $6.65 billion. The outlook contrasts its decline in gross margins and cash on hand. This makes it among the best undervalued high-growth stocks to buy.
Applied is among the semiconductor firms working through the excess supply. For example, the demand for memory is weak. Competitors need to cut prices to lower inventory levels in the channel.
In the longer term, Applied expects a race in the leading edge foundry and logic markets will intensify. It must invest in its strengths to stay ahead.
Other segments of the chip sector are supply constrained. Applied has a shortage in some electrical components. It will deal with this headwind steadily. To offset profit pressures, it will build its market outside of electric vehicles.
In industrial automation, the company will develop solutions that help customers build a digital infrastructure.
Best Buy (BBY)
In the second quarter, Best Buy (NYSE:BBY) posted non-GAAP earnings of $1.54 a share (non-GAAP). The retailer offers a dividend of $3.52 a share annually.
Investors get a good balance of income and growth with BBY stock. In the third quarter, CFO Matt Bilunas said that Best Buy’s comparable sales will fall by more than the 12.1% posted in the second quarter.
Best Buy is an undervalued, growth company. It will offset gross margin pressure from lower sales through Totaltech. This membership offers customers valuable benefits, including up to 24 months of product protection.
During the holiday period, income-constrained customers will still need product upgrades. They may buy a new large television or upgrade their smartphone. Customers will visit its stores to get neutral advice from sales staff. That is the right experience that drives its long-term growth.
CVS Health (CVS)
CVS Health (NYSE:CVS) stumbled recently when the Centers for Medicare & Medicaid Services downgraded its Aetna national preferred provider organization plan to 3.5 stars. CVS will not be eligible for the CMS quality bonus payment related to 2024.
Investors should expect CVS management to address this serious industry. Once it chooses to invest in raising the service quality and sacrificing profits, CVS will earn a better rating.
CVS stock trended lower when it acquired Signify Health. Management is confident that Signify fits strategically into its business.
President and Chief Executive Officer Karen Lynch said that Signify will extend into CVS’s health services and consumer engagement. In addition, Signify has home-based activities.
This complements CVS’s large retail footprint. The company interacts with around 100 million people through its Aetna and pharmacy business.
It has 45 million unique digital customers. Looking ahead, its digital connection will increase the frequency that customers interact with the company. This increases CVS’s revenue potential.
Mondelez International (MDLZ)
Mondelez International (NASDAQ:MDLZ) has strong brands in the food business, especially in the biscuits and chocolate markets. In the last two to three years, Mondelez acquired nine companies to generate around $2.8 billion in sales.
Shareholders benefit from the company’s increased addressable market. In the next two to five years, it will invest in its new product categories.
This will lift its organic growth. Currently, Mondelez relies primarily on the chocolate market, which is the #2 global player. Brands such as Cadbury are known around the world.
Mondelez may leverage its growth in the chocolate market by investing in its new markets. In the near term, investors should expect MDLZ stock to benefit from seasonal strength. The Halloween, Christmas, and Easter markets are strong opportunities for the chocolate market.
In the premium segment, Mondelez will rely on Toblerone and Green and Black. For example, it is re-launching Toblerone in the second half of this year. Consumers will find this product in more duty-free stores.
Target (TGT)
Target (NYSE:TGT) is gearing up for the holiday season. It is hiring 100,000 employees and extending promotions.
In addition, the firm is bringing back Target Deal Days. It is offering guests early access to deep holiday deals. This includes essential items.
Target’s aggressive campaign will bring back customers it lost due to the recession. It will attract cash-strapped customers. As more customers choose to shop at Target stores, the company will sustain its profit margins. Investors will buy more TGT stock whenever it dips.
During the back-to-school season, Target strengthened its multi-category portfolio. The company likely benefited from strong sales of such items as kid’s uniforms and backpacks.
Target may build on the customer traffic momentum throughout the quarter. It already adjusted its inventory. It managed its products effectively such that they are in stock when people need them.
United Parcel Service (UPS)
United Parcel Service (NYSE:UPS) is finding ways to cut costs to drive productivity and efficiency. In the second quarter, it launched the Total Service Plan. Together with the Smart Package/Smart facility, it will realize around $300 million in savings.
UPS has $1.7 billion in increased costs to manage. It will need to grow its volume mix in the small and medium businesses to strengthen revenue.
This diversifies its revenue and increases revenue durability in the second half of the year. More recently, energy prices, which are a cost to UPS operations, are falling. The combination of lower costs and higher revenue will result in margins in the low 20% range.
Walmart (WMT)
Walmart (NYSE:WMT) attracts mid-to higher-income customers who seek savings.
The company may drive customer traffic by selling food and consumables they need. The more money customers save, the more likely they return to Walmart to shop.
CEO Doug McMillon said that Walmart had a strong back-to-school season. While browsing, customers will buy other items like backpacks and clothing items.
WMT stock will strengthen as the company lowers its inventory. In the second quarter, its inventory improved by 750 basis points.
For the third quarter, the company is positioned to sell apparel at higher prices aligned to inflation. Fortunately, it does not need to market down as many items.
Just as Target and Mondelez will benefit from upcoming events like Halloween, Walmart will, too. Markets will reward Walmart if it posts strong sales in the third quarter.
WMT stock trades at a price-to-earnings ratio in the 20 times range. The premium is justified. The company has strong rollback product price campaigns that consumers enjoy.
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.