3 Undervalued Growth Stocks to Buy and Hold for the Long Term

  • The tech slump should not last very long-so investors should buy undervalued growth stocks at this point.
  • PayPal (PYPL) will benefit from the growth of digital payments and its integration with Amazon (AMZN).
  • Expedia (EXPE) will get a lift from the travel boom and its utilization of AI.
  • IBM's (IBM) hybrid cloud business is performing well, while the valuation of IBM stock is very low.
undervalued growth stocks - 3 Undervalued Growth Stocks to Buy and Hold for the Long Term

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Among high inflation and rising interest rates, Wall Street now has little appetite for growth stocks. As a result, the valuation of nearly all such names has been decimated. Yet history and common sense strongly indicate that there are many undervalued growth stocks for investors to buy at this point.

History suggests that the current slump which growth stocks are undergoing won’t last many years, as the Nasdaq has usually bounced back within 12 months or 24 months from its big downturns.

And common sense indicates that, with momentous, society-changing technologies like digital payments, autonomous vehicles, artificial intelligence, electric vehicles, and the cloud proliferating, growth companies that are at the forefront of these trends will prosper tremendously over the longer term.

Given the power of these companies’ technologies, the attractiveness of their current valuation, and the strength of their business, their stocks can and should be held for the long-term. Three undervalued growth stocks that are very well-positioned to soar once Wall Street’s current malaise ends are:

PYPL PayPal $71.09
EXPE Expedia $96.10
IBM IBM $135.6

PayPal (PYPL)

Paypal logo next to Bitcoin logo

Of course, PayPal (NASDAQ:PYPL) is at the forefront of the global embrace of digital payments. That trend should continue over the long-term.

Indeed, Goldman Sachs expects the move away from cash to continue for some time in developed countries.

Visa (NYSE:V) noted “that U.S. payments volume in May without a physical card present, excluding travel spending, was running at 173% of the equivalent 2019 level, versus 127% for card-present payments,” The Wall Street Journal noted.

Also likely to boost PayPal, as I pointed out in the past, is Amazon’s (NASDAQ:AMZN) decision to accept payments from PayPal’s Venmo.

Despite all the hand-wringing about fintech companies, including PayPal, the company’s top line climbed 8% in the first quarter to $6.48 billion, while its added 2.4 million “net new active accounts,”

And the company expects its 2022 earnings per share to come in at $3.89-$3.93, down only slightly from last year’s $4.65.

Yet PayPal’s forward price earnings ratio, at just 19.53, is quite low for a profitable company that’s growing quickly and is at the forefront of an important societal trend.

Expedia (EXPE)

Expedia (EXPE) app logo on a smartphone screen
Source: NYC Russ / Shutterstock.com

Not only is Expedia (NASDAQ:EXPE) at the forefront of the travel explosion that is gripping the U.S., but it’s also embracing the artificial intelligence revolution.

A measure of how well the travel sector is performing was provided by the World Travel & Tourism Council. Earlier this month, that organization reported that America’s  travel and tourism sector now is expanding at an annual rate of 3.9% while, in 2022, its “GDP contribution will grow by more than 42% versus 2021.”

As far as AI is concerned, Expedia last year began allowing its partners to utilize its AI-powered “virtual agent.” The company indicated that the product would enable its partners to save a significant amount of time. That, in turn, has likely made Expedia much more appealing as a partner for travel companies.

And just last month, Expedia launched a new, AI-powered platform for its partners. The company described the platform dubbed Open World, as “a reimagined marketplace that rewards partners for delivering great traveler experiences; and a focus on developing traveler technology that provides the right information to increase booking confidence.”

In other words, the company is using AI to identify its most successful partners  and provide more extensive information to its customers. Over the medium-and-long-term, Open World should make Expedia much more successful, boosting EXPE stock in the process.

Undervalued Growth Stocks: IBM (IBM)

Photo of IBM (IBM) building as seen through the canopy of a tree. IBM logo is in large letters on side of building.
Source: shutterstock.com/LCV

In-line with my predictions at the end of 2021, International Business Machines Corporation (NYSE:IBM) stock have performed quite well this year, with the shares climbing 1.5% this year, in addition to providing a 4.86% dividend yield.

The company’s core strategy of focusing on hybrid cloud and AI are clearly working. As I explained in my December column about IBM, hybrid cloud simply refers to utilizing “multiple  multiple public clouds.”

The CEO of IBM, Arvind Krishna, has concentrated on selling software that enables companies to interface with “multiple public clouds.” From the point of view of IT security and preventing downtime, I argued, the hybrid cloud approach made sense.

And the strategy, along with the company’s decision to spin off its negative-growth, low-margin managed-security unit, Kyndryl, is clearly working. Indeed, the company’s CFO, Jim Kavanaugh, recently reiterated the company’s long-term guidance for annual revenue growth of roughly 5% and annual free cash flow increases of around 8%-9%.

The CFO added that the company’s consulting, revenue is expanding at a 8%-9% rate due to the company’s acquisitions and its focus on consulting in the hybrid cloud space. Meanwhile, the revenue of its Red Hat unit is jumping nearly 20% annually.

The forward price-earnings ratio of IBM stock is a tiny 14.

On the date of publication, Larry Ramer 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.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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