When you think of hot growth stocks, the usual suspects of Netflix (NFLX), Amazon.com (AMZN) and Tesla Motors (TSLA) come to mind, but between momentum and sky-high valuations, there’s no telling when any of these names could come crashing down to earth.
Fortunately, in more boring parts of the market, there are high-quality stocks with red-hot long-term growth prospects trading at bargain-basement prices.
And they are about as far away from tech or other traditional growth areas as they come.
The first thing we wanted in our surprising and cheap hot growth stocks was quality, so we limited our search to names with a return on equity (ROE) of at least 20. Then, to make sure the growth was there, we looked for stocks that are rapidly increasing their profits. In this case, the long-term growth forecast had to be at least 20%, or more than twice that of the S&P 500.
Finally, we wanted value. Hot growth stocks usually come with a hefty premium, but we wanted cheap stocks in old, stable businesses that just happened to have great growth prospects. To suss out would-be bargains, we searched for stocks that are cheaper than the broader market, and trading at discounts to their own historical averages on a forward price-to-earnings basis.
Here are some of the most promising stocks we found: