Macroeconomic headwinds everywhere are dampening stock market prospects. Growth stocks are especially prone to market selling pressure. Speculators generally assume that all growth companies will face a severe slowdown in the months ahead. Their corresponding stock fell into cheap value territory on market pessimism.
Those cheap growth stocks will not stay that way for long. The discount between its fair value and market price will shrink. As the company’s business grows despite the near-term economic slowdown, stock markets will lift their share price.
The selected stocks are cheap because they may have a low price-earnings ratio. They may happen to trade at favorable a price-sales ratio.
The seven cheap growth stocks represent a variety of sectors, including technology, pharmaceuticals and fintech. Markets dumped those stocks more than they should have due to panic selling. Investors do not need to wait for markets to calm down before buying. Eventually, perceptive investors will notice the selected companies have high-quality returns trading in deep value territory.
|ACLS||Axcelis Technologies, Inc.||$61.99|
|ANET||Arista Networks, Inc.||$103.17|
|BMY||Bristol-Myers Squibb Company||$75.17|
|O||Realty Income Corporation||$67.36|
|PERI||Perion Network Ltd.||$20.31|
Cheap Growth Stocks: Axcelis Technologies (ACLS)
Axcelis Technologies (NASDAQ:ACLS) benefits from strong demand for semiconductor chips. Customers need capital equipment to produce them. They need Axcelis and its full Purion product family.
In the last quarter, the company met customer demand and reported revenue of $203.6 million. It earned $1.22 a share and enjoyed a gross margin of 44.1%. More than 80% of shipments in Q1 went to mature foundry logic customers. NAND accounted for another 9% of revenue while DRAM accounted for 10%.
Axcelis cited the industry is in the strongest cycle ever seen. The implant total addressable market increased to around $2 billion. In 2022, it will benefit from growth in its power segment. The automotive industry is transitioning to the electric vehicle market.
China’s Covid lockdown disrupted the supply chain. Suppliers are waiting for output to resume. Fortunately, Axcelis worked around the issue for the last several quarters. For example, its engineering teams found alternatives to orders and proprietary design constraints.
ACLS stock is resilient. It will not trade at a discount for long.
Arista Networks (ANET)
Investors did not appreciate Arista Networks (NYSE:ANET) when it posted strong first-quarter results. The firm increased its revenue by 6.4% to $877.1 million. The gross margin was 63.1%. Net income was 85 cents per diluted share or $272.3 million.
Arista issued strong guidance. It expects revenue of up to $1 billion for the second quarter. The non-GAAP margin of 60% to 62% is similar to Q1’s results. Despite consistently posting strong results, the stock is still on a downtrend. Investors are fearful of all networking and technology stocks. They are ignoring the upside potential in ANET stock. Analysts, who are often late in issuing buy calls, are bullish. The average price target on ANET stock is $152, according to Tipranks.
Arista has new products for larger customers on the way. In addition, it has strong visibility for 2022 and 2023. For example, its cloud customers will increase orders of products at the beginning of Arista’s product life cycle. Arista’s customers have multi-year commitments worth billions. Investors may count on its steady revenue expectations ahead.
Bristol Myers Squibb (BMY)
Bristol Myers Squibb (NYSE:BMY) expanded Opdivo by winning multiple regulatory approvals in the first quarter. In addition, the Food and Drug Administration approved Opdivo with chemotherapy as a neoadjuvant treatment for patients with resectable non-small cell lung cancer.
Bristol Myers expects total net sales of $47 billion, in line with its February forecast. It expects a gross margin of 78%.
Camzyos is the company’s newest major product launch. It is an important new medicine that treats obstructive hypertrophic cardiomyopathy patients. Bristol Myers said that its four study patients were highly motivated to stay on the drug. The response suggests that with education and knowledge about the product, future patients will continue the treatment.
In the near term, investors should watch for patients benefiting from increased access to Camzyos therapy. Since it will not be going to be formulary on the first day, Bristol Myers will need to cover patients on bridge programs for around four to six weeks. This will pressure initial margins. Once support increases, the drug could become a blockbuster.
Cheap Growth Stocks: Mastercard (MA)
Mastercard (NYSE:MA) normally trades at a premium. When the share price dips, it creates a temporarily cheap stock. Each time it fell, buyers stepped in quickly.
Mastercard benefits from customers remaining in good shape. Inflation raised the price of airplane tickets and gas costs. This increases the user’s transaction value and benefits MA stock. So far, macro headwinds in each country are not hurting spending habits.
Increased travel is a tailwind for Mastercard’s business. Cross-border travel came back stronger than the company expected. Volumes are above 2019 levels. That is a major contributor to the company’s margin expansion.
Mastercard will invest in a disciplined manner to maximize shareholder value. It will look for the right opportunities that add to its top-line growth.
In the emerging market, Brazil is a strategically important market. It is very well established with banks in the region. Brazil offered Buy Now, Pay Later for a very long time. With open banking rising, the need for P2P networks to support digitization is rising. Mastercard’s P2P solution already has 4.7 million users on its platform.
MA stock gives investors a healthy exposure to Brazil and global markets.
Realty Income (O)
Realty’s investments are an important aspect of its growth strategy. Last year, it acquired Vereit. After the merger, it immediately began its integration efforts. This will lead to higher operating efficiency as the company delivers continued scalability.
On its conference call, President and Chief Executive Officer Sumit Roy said that Realty is ahead of schedule in realizing synergies with Vereit. It is focused on executing between $45 million to $55 million in cost synergies.
The company is accelerating its investments in Western Europe, particularly in the U.K. It found property affordability for its cost of capital. Given its success in the region, it will expand its pipeline in Spain. For example, it completed a sale-leaseback. As its comfort level grows, Realty Income will add big names to its client registry.
Perion Network (PERI)
In the digital advertising market, Perion Network (NASDAQ:PERI) posted revenue and net income growth in its first quarter. PERI stock did not respond positively despite the company raising its outlook for the fiscal year 2022.
In the first quarter, Perion reported revenue of $125.3 million, up by 39.5% from a year ago. It earned 44 cents in non-GAAP EPS. Perion views connected television as a strategic opportunity. It will continue to match digital advertising impressions with requests. This will expand its operating margins.
For the year, Peron expects revenue of up to $640 million. Adjusted EBITDA of $98 million to $102 million is up from the prior outlook of $88 million to $92 million.
Markets are concerned about restricting user tracking. Still, search engine activity keeps going up. It is a strong tailwind for Perion’s business. In the last quarter, the firm performed over 100 campaigns with success. It noted good key performance indicators. This suggests its advertising model has scalability potential.
Cheap Growth Stocks: Visa (V)
Visa (NYSE:V), like Mastercard, benefited from a travel recovery and robust spending in the second quarter. Analysts fretted over the shutdown in China and the war in Europe hurting Visa’s business. Fortunately, travel volumes are accelerating. Visa’s overall transaction volumes will not weaken from business loss related to China, Japan, Korea, and Taiwan.
Pent-up demand for travel is very high. Summer bookings indicate that Visa will report another strong quarterly report.
Chairman and CEO Al Kelly said that the B2B segment is a $122 trillion opportunity. Within it, the credit card space is worth $20 billion. The cross-border market accounts for another $10 trillion. Since Visa dominates the carded space, investors should appreciate the strong moat protecting its profit margins.
Visa is building B2B Connect to capture more market share. More banks are joining the network. In addition, more countries are involved in it. Visa continues to focus on growing this segment, which will reward long-term shareholders.
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.