Growth at a reasonable price is today’s theme as we dial in on a few cheap stocks with illustrious growth potential.
The Invesco S&P 500 GARP ETF (NYSEARCA:SPGP) is up by approximately 13% since the turn of the year. Sure, the index’s year-to-date performance is impressive. However, I think the best is yet to come; here’s why.
The U.S. yield curve is drifting lower amid an expected 2024 interest rate pivot, and credit spreads are mild. Combined, these two factors will likely adjust investors’ risk tolerance higher next year and ultimately lead to a significant influx into growth and value stocks. Moreover, large-cap GARP stocks underperformed the S&P 500 this year, meaning a technical buying opportunity could be in play.
With my top-down outlook in mind, I drafted three cheap stocks to buy with growth potential. Let’s discuss each of them in detail.
Steel Dynamics (STLD)
Steel Dynamics’ (NASDAQ:STLD) more than 13 million tonne production capacity makes it one of the largest steel producers in the United States. The firm has a broad end-market, participating in long products and long-rolled steel, recycled metals, steel joists and decks, and even copper. Moreover, as shown by its net income margin of 13.74%, Steel Dynamics’ has wide profit margins, allowing for outcomes such as economies of scale and market cornering.
The steelmaker released its third-quarter results in October, missing its earnings per share target by one cent. However, the market brushed the earnings miss aside as STLD stock has risen by nearly 10% ever since. It is clear that it’s the outlook that matters here. Steel Dynamics may benefit from a steel price resurgence in 2024 if interest rates pivot. In addition, a price pivot could interact with the firm’s rapid expansion to deliver significant growth.
Steel Dynamics is expanding across the board. For example, the company’s $1.9 billion Texas-based Sinto flat-roll steel mill started production in the first quarter of 2022. Another example is Steel Dynamics’ decision to invest in the North American Aluminum market via a $2.5 billion flat-roll mill project forecasted to deliver early-stage production in 2025.
Historical data shows that Steel Dynamics’ continuous expansion is reflected in its valuation. STLD stock has a P/E ratio of only 7.11 times, which is accompanied by a 10-year compound annual growth rate of 10.36%, echoing a GARP opportunity.
Limbach Holdings (LMB)
Limbach Holdings (NASDAQ:LMB) is an exciting prospect. I’ve been following LMB stock for a while and admit that I did not expect it to rise by 2.5x year-over-year.
The company’s business model has office clients as its end market, whereby Limbach provides offerings in the heating, ventilation, and air conditioning (HVAC) arenas. Moreover, the firm has an “owner direct” segment that offers direct maintenance as an ancillary business to HVAC.
As you can see, Limbach’s business model isn’t flashy or new. The company operates a basic business. However, Limbach’s strength is in its market stronghold in a niche environment. In addition, the firm follows a growth-by-acquisition strategy emphasizing suitable multiples, synergies, and top-line scalability. For example, Limbach recently acquired Industrial Air in a $13.5 million deal that included no premium at all. In fact, Limbach bought the firm at enterprise value.
Limbach has a return on common equity of 18.66%, showing the success of smart acquisitions and high-quality service delivery. The firm has a cash-per-share ratio of 5.22, suggesting to me that further acquisitions are on the horizon, which may lead to additional value for shareholders.
Despite LMB stock’s scintillating form, its trailing P/G growth ratio of 0.17 times shows it remains grossly undervalued.
I thoroughly believe that we are looking at a strong buy here.
Impala Platinum Holdings (IMPUY)
Impala Platinum Holdings (OTCMKTS:IMPUY) is a Platinum Group Metals (PGMs) miner. The enterprise is considered one of the world’s best PGM miners, with operations spanning Canada, South Africa, and Zimbabwe. A big attraction to Impala Platinum is its growth potential. I base this on the company’s high-performance mining portfolio and its significant cash position of $26.84 billion, which could coalesce to result in substantial growth over the next few years.
Impala Platinum’s stock has shed more than half of its value since the turn of the year amid electricity feed issues in South Africa and a broad-based slump in PGM prices. However, an inflection point has emerged. Firstly, the South African electricity mix should improve next year as municipal strikes have officially ended. As for PGM prices, we could see a price recovery in 2024 as interest rates are likely to settle lower throughout the year.
Furthermore, Impala Platinum has promising structural developments. One of the most noteworthy factors is its recent acquisition of RB Platinum, which provides cost synergies. In addition, Impala Platinum’s production might rise soon amid notable investments in Zimbabwean midstream and South African upstream endeavors.
Lastly, IMPUY stock looks alluring from a market-based perspective. IMPUY’s price-to-book ratio of 0.65 times suggests the asset is undervalued. Additionally, Impala Platinum’s 10-year compound annual growth rate of 13.58% conveys its robust growth trajectory.
On the date of publication, Steve Booyens held an indirect long position in IMPUY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
