High-growth stocks draw the lion’s share of the attention in financial media. These securities usually show higher levels of volatility and often represent the future of the American economy. Today, these equities often revolve around new technologies like AI, VR and the Internet of Things (IoT).
However, concepts that we might consider “new again” also draw this interest. Due to decades of suppression, cannabis has become one of these areas. Also, judging by the performance of Chipotle (NYSE:CMG), even equities revolving around fast food can turn into high-growth stocks with the right approach.
As one might expect, the overwhelming majority of these stocks carry the high P/E ratio that goes along with elevated growth. However, not all prospective buyers want that level of risk. Fortunately, a few high-growth stocks also fall into the “undervalued stocks” category. The following equities constitute some of the best stocks for combining growth with value:
ABBV stock has suffered in recent months as its old blockbuster drug, Humira, faces patent expirations in many countries. However, AbbVie’s drug pipeline has received favorable reviews. For this reason, most analysts believe that a new drug or a combination of future best sellers will more than replace the income lost from generic versions of Humira.
Still, due to the uncertainty, ABBV stock trades at only 8.4 times forward earnings. However, even with a single-digit P/E ratio, Wall Street predicts 10.6% profit growth for 2019. They also believe the average increase will come in at almost 13.4% per year over the next five years.
ABBV also offers one key benefit stemming from its former association with Abbott — dividend aristocrat status. Walking away from its 46-year streak of payout hikes would put ABBV stock at risk. Hence, one can assume the increases will continue. Their board also approved a 40% increase in 2018 and a 19% hike for this year. Given the pressure to raise dividend payments every year, this is a remarkable show of confidence. Moreover, thanks to a lower stock price and higher dividends, the yield now stands at 5.4%.
Investing in ABBV stock now involves some faith. However, with a single-digit P/E, double-digit profit growth, and a generous, growing dividend, investors could receive tremendous rewards for believing.
With its $800 billion market cap and massive slide last fall, Apple (NASDAQ:AAPL) might seem like a strange choice for a high-growth stocks list. Indeed, both the stock and the earnings projection saw a considerable move lower as iPhone sales fell well short of initial estimates. Also, laws of mathematics weigh on growth. An increase in AAPL’s market cap of just 10% would mean $80 billion in growth, eight times the minimum size of a large-cap stock.
However, as smartphone prices fall, Apple is working to make itself less iPhone-dependent. It no longer reports iPhone unit sales. Moreover, moves into services and healthcare should bring new sources of revenue.
Due to tepid iPhone sales, profit growth for the year will come in at only 0.3%. But it should reclaim its high-growth status assuming the predicted 11.5% growth (and higher in the years after) comes to pass.
AAPL stock may suffer for a time as it works to diversify sales away from the iPhone. However, with its enormous cash hoard and its ability to pioneer new technologies, AAPL stock will remain a solid growth story as it works to reclaim its $1 trillion market cap.
I normally would not place an equity with a 51.5 trailing P/E ratio in the “cheap” category, but compared to peers in the cannabis space, CannTrust (OTCMKTS:CNTTF) remains inexpensive. Although one can place almost every marijuana equity in the “high-growth stocks” category right now, CannTrust stands out with its consistent profitability.
For those concerned about the OTC listing, CannTrust applied to trade on the NYSE last month. Once that listing occurs, more traders can buy it, so it should see some increase at that time.
As most know, the Canadian marijuana boom came to an abrupt end in October when the product gained full legal status in Canada. However, legalization of one form of cannabis, hemp, has reignited this boom south of the Canadian border. The equities of larger peers such as Canopy Growth (NYSE:CGC) have already recovered most of the losses which occurred following legalization in Canada. CNTTF stock has also risen by more than 60% from its December low.
Even if full legal status does not come soon, both hemp and CBD-related products alone should allow for massive growth across the U.S. With its specialty in cannabis oils, CannTrust should benefit. The company also expanded into Europe by becoming the first and only foreign seller of cannabis oil in Denmark beginning in October.
At this moment, most cannabis equities could be described as high-growth stocks. However, with its relatively low P/E, its focus on cannabis oil, and the move to the NYSE, CannTrust delivers this growth at a lower risk compared with its key peers.
Qualcomm (NASDAQ:QCOM) stock has suffered in recent years. A long-running legal dispute with Apple has resulted in the exclusion of Qualcomm chips from the later models of the iPhone. This and other legal battles regarding its licensing practices have weighted on QCOM. As a result, the stock trades nearly 40% below a multi-year high last seen in 2014.
However, a great deal of anticipation surrounds its 5G-capable Snapdragon 855 chip. Carriers have begun to launch 5G networks, and most expect 5G capable phones to see a wide release beginning later this year. While QCOM’s chip will not appear in the iPhone, makers of Android-powered smartphones have shown an interest. As a result, analysts believe that profit increases will again see double-digit increases beginning in 2020. After years of profit declines, Wall Street predicts that annual growth will average 10.7% per year over the next five years. This will occur just as the company’s forward P/E ratio falls to around 11.6.
QCOM stock has also quietly developed a reputation as a dividend-paying stock. Despite declining profits in past years, Qualcomm has hiked its payout for eight years in a row. As a result of the increases and the lower stock price, the dividend yield has risen to about 4.9%.
Yes, its dispute with Apple has weighed on the stock. However, thanks to 5G, the company has developed a new source of revenue. Investors can also collect a generous dividend while waiting for 5G to revive QCOM. Thanks to that dividend, QCOM stock should pay off even if it does not pay off in growth.
Spirit (NYSE:SAVE) has offered value and growth to an industry not known for fostering high-growth stocks: airlines. For decades, Southwest (NYSE:LUV) brought innovation to the industry as its take on air travel brought lower fares, profits, and high-growth to a stagnant, unprofitable industry.
Today, Spirit leads that charge. As the leader of the ultra-low-fare segment of the industry, it continues to see massive profit growth and expansion in both domestic and international markets. Spirit has won over price-sensitive customers who will trade perks such as in-flight beverages and carry-on bags for lower costs.
Like Southwest, Spirit has depended on one plane type. However, the company now plans to add a type of regional jet to its fleet. This will allow SAVE to bring low fares to smaller markets dominated by legacy carriers.
Even without smaller markets, it has already seen growth numbers that shoot toward the stratosphere. Analysts forecast profit growth of 45.7% for 2019. They also believe earnings increases will average above 20% per year for the foreseeable future.
Despite this growth, Spirit, like other airlines, has struggled to achieve higher P/E ratios. This may explain why its multiple is only slightly higher than slower-growth airlines such as American (NASDAQ:AAL) or Delta (NYSE:DAL). SAVE’s forward P/E currently stands at around 9.6.
Admittedly, few gravitate to airlines when looking for cheap, high-growth stocks. However, the massive profit growth and continuous expansion show that Spirit has become the king of the ultra-low-fare airline sector. Driven by small markets and foreign expansion, profits should continue to climb.
As of this writing, Will Healy is long ABBV and CNTTF stock. You can follow Will on Twitter at @HealyWriting.