Stock Market

20 value stocks whose growth potential is overlooked by investors

After a years-long bull market in growth stocks, the beleaguered value strategy has outperformed this year, as rising interest rates apply pressure on equities.

Below is a screen of large-cap value stocks that have growth characteristics. This may serve as a starting point for your own stock-selection research in a difficult market environment.

First, let’s look at the this year’s performance of the S&P 500
SPX
and two of its subsets, the S&P 500 Value Index and the S&P 500 Growth Index, through Sept. 9:


FactSet

You can see that the S&P500 Value Index has held up much better than the S&P 500 Growth Index during 2022.

Companies in the value camp generally are expected to grow less rapidly than those in the growth camp, while the value stocks also tend to trade lower to expected earnings and sales. Mature companies might seem more likely to be considered value stocks. However, there are plenty of examples of mature companies that continue to grow rapidly.

The S&P 500 Value Index is made up of 446 companies drawn from the full S&P 500 that rank highest in a composite score developed by S&P Dow Jones Indices that encompasses valuations to book value, earnings and sales. You can read more about S&P Dow Jones Indices’ value/growth “style basket” methodology here.

Screening value stocks for growth potential

Beginning with the 446 constituents of the S&P 500 Value Index, the initial screen reduced the list of stocks to 432 for which consensus sales and earnings-per-share estimates are available through calendar 2024 among at least five analysts polled by FactSet. We used calendar-year estimates because many companies have fiscal years that don’t match the calendar.

We then went further to screen out any company expected to show a net loss for calendar 2022, 2023 or 2024. This brought the screen down to 422 companies.

Among those 422 companies in the S&P 500 Value Index, here are the 20 with the highest expected two-year compound annual growth rates (CAGR) for sales through 2024:

Company

Ticker

Two-year estimated sales CAGR through 2024

Estimated sales – 2022 ($bil.)

Estimated sales – 2023 ($bil.)

Estimated sales – 2024 ($bil.)

Take-Two Interactive Software Inc.

TTWO 26.3%

$5,302

$7,482

$8,454

SolarEdge Technologies Inc.

SEDG 24.4%

$3,072

$3,909

$4,752

Paycom Software Inc.

PAYC 22.4%

$1,355

$1,663

$2,031

Ceridian HCM Holding Inc.

CDAY 16.8%

$1,228

$1,434

$1,674

Twitter Inc.

TWTR 16.7%

$5,287

$6,034

$7,205

Mastercard Inc. Class A

MA 16.0%

$22,260

$25,814

$29,929

Prologis Inc.

PLD 15.6%

$4,673

$5,486

$6,243

Salesforce Inc.

CRM 15.5%

$30,657

$35,244

$40,875

Abiomed Inc.

ABMD 15.3%

$1,123

$1,292

$1,494

Incyte Corp.

INCY 14.6%

$3,391

$3,918

$4,453

Illumina Inc.

ILMN 14.3%

$4,733

$5,453

$6,180

Berkshire Hathaway Inc. Class B

BRK 14.1%

$269,039

$335,270

$350,527

PayPal Holdings Inc.

PYPL 14.1%

$27,858

$31,703

$36,285

Chipotle Mexican Grill Inc.

CMG 13.7%

$8,744

$9,940

$11,303

Aptiv PLC

APTV 13.7%

$17,190

$19,619

$22,212

Intuitive Surgical Inc.

ISRG 13.6%

$6,212

$7,004

$8,019

Celanese Corp.

CE 13.3%

$9,561

$10,989

$12,266

Autodesk Inc.

ADSK 13.2%

$4,965

$5,598

$6,359

Booking Holdings Inc.

BKNG 12.6%

$16,859

$19,179

$21,366

Activision Blizzard Inc.

ATVI 12.5%

$8,016

$9,612

$10,146

Source: FactSet

Click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on MarketWatch quote pages.

A stock screen such as this one highlights only one factor. If you see any company on the list that is of interest, you should then do your own research to form your own opinion about how likely a company is to remain competitive over the next decade.

The company ranking highest on the list is Take-Two Interactive Software Inc.
TTWO,
which develops the Grand Theft Auto videogames through its Rockstar Games label. The most recent release in that series was GTA V, which came out in 2013, but is still actively supported.

Jefferies analyst Andrew Uerkwitz rates Take-Two a “buy” and has included the company on his firm’s “Franchise Picks” list. Take-Two’s expected 26.3% sales CAGR from 2022 through 2024 may reflect the expectation that GTA VI will be released.

In a note to clients on Sept. 9, Uerkwitz made clear that he doesn’t know when the game will be released, but also wrote: “What we do have confidence in is that when it gets announced, we’ll see a rerating in the valuation and consistent stock appreciation as excitement and anticipation builds.”

“We will happily wait patiently,” he added.

Many analysts agree with him, as you can see on this summary of analysts’ opinions of the group:

Company

Ticker

Share “buy” ratings

Share neutral ratings

Share “sell” ratings

Closing price – Sept. 9

Consensus price target

Implied 12-month upside potential

Take-Two Interactive Software Inc.

TTWO 74%

26%

0%

$127.78

$164.08

28%

SolarEdge Technologies Inc.

SEDG 73%

23%

4%

$313.00

$367.63

17%

Paycom Software Inc.

PAYC 70%

30%

0%

$370.17

$398.61

8%

Ceridian HCM Holding Inc.

CDAY 56%

38%

6%

$63.57

$71.38

12%

Twitter Inc.

TWTR 0%

94%

6%

$42.19

$41.51

-2%

Mastercard Inc. Class A

MA 92%

8%

0%

$335.85

$425.48

27%

Prologis Inc.

PLD 75%

25%

0%

$129.63

$161.93

25%

Salesforce Inc.

CRM 86%

14%

0%

$162.59

$221.07

36%

Abiomed Inc.

ABMD 40%

50%

10%

$282.28

$328.33

16%

Incyte Corp.

INCY 52%

43%

5%

$72.20

$88.35

22%

Illumina Inc.

ILMN 28%

55%

17%

$210.35

$242.69

15%

Berkshire Hathaway Inc. Class B

BRK 29%

71%

0%

$285.77

$356.62

25%

PayPal Holdings Inc.

PYPL 71%

29%

0%

$96.23

$119.39

24%

Chipotle Mexican Grill Inc.

CMG 70%

30%

0%

$1,723.32

$1,781.77

3%

Aptiv PLC

APTV 74%

19%

7%

$96.74

$130.41

35%

Intuitive Surgical Inc.

ISRG 64%

32%

4%

$221.32

$255.19

15%

Celanese Corp.

CE 54%

38%

8%

$115.29

$145.14

26%

Autodesk Inc.

ADSK 70%

26%

4%

$211.68

$256.30

21%

Booking Holdings Inc.

BKNG 66%

31%

3%

$1,981.03

$2,397.46

21%

Activision Blizzard Inc.

ATVI 46%

54%

0%

$78.51

$93.59

19%

Source: FactSet

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Hear from Ray Dalio at MarketWatch’s Best New Ideas in Money Festival on Sept. 21 and 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

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