7 Undervalued High-Growth Stocks to Buy Now


  • Undervalued high-growth stocks have the best risk-to-return ratio for conservative investors this year.
  • Applied Materials (AMAT) – Unique products to customers sustain this company’s competitive edge.
  • Best Buy (BBY) – Strong electronics demand in the holiday period could give the quarter a boost.
  • CVS Health (CVS) – Despite a lower star rating, stronger retail sales will increase revenue.
  • Kraft Heinz (KHC) – Strong pricing power for private brands will sustain profits.
  • Target (TGT) – Customer demand for apparel will increase revenue.
  • United Parcel Service (UPS) – Efficiencies in logistics will increase profits.
  • Walmart (WMT) – Strong product mix and minimal price hikes will drive revenue higher.
  • • CVS Health (CVS) – Despite a lower star rating, stronger retail sales will increase revenue.
    • Kraft Heinz (KHC) – Strong pricing power for private brands will sustain profits.
    • Target (TGT) – Customer demand for apparel will increase revenue.
    • United Parcel Service (UPS) – Efficiencies in logistics will increase profits.
    • Walmart (WMT) – Strong product mix and minimal price hikes will drive revenue higher.
Undervalued High-Growth Stocks - 7 Undervalued High-Growth Stocks to Buy Now

Source: Freedom365day / Shutterstock.com

Undervalued high-growth stocks are getting easier to find.

The bear market sent the S&P 500 (NYSE:SPY) down by 20% from its 52-week high. This created tremendous undervaluation in the majority of equities, including undervalued high-growth stocks.

Investors who buy discounted stocks might worry that the underlying company is a value trap. However, companies may face a temporary slump due to market conditions. When the economy rebounds, firms with the strongest balance sheet and highest operating efficiency will rebound fastest.

Shareholders who buy undervalued high-growth stocks get a bigger margin of safety in return for the higher risk. This suggests that the downside risks are lower relative to the upside potential.

Inflation increased input costs, which corporations passed to consumers. As inflation rates slow this year, demand will recover.

AMAT Applied Materials $97.96
BBY Best Buy $80.60
CVS CVS Health $91.44
KHC Kraft Heinz $41.38
TGT Target $152.10
UPS United Parcel Service $175.05
WMT Walmart $143.75

Applied Materials (AMAT)

Applied Materials company sign outside office
Source: michelmond / Shutterstock.com

Applied Materials (NASDAQ:AMAT) has an efficient financial model. It restricted its capital expenditure to around 16% of revenue. According to Chief Financial Officer Brice Hill, Applied doubled its gross margins over the last six years.

The company has a broad portfolio. This will increase its business resiliency. It offers a broad portfolio that integrates with customers. This gives AMAT stockholders a strategic advantage.

AMAT stock pulled back below its 200-day simple moving average in the last month. The stock trades at a price-to-earnings of 13.1 times. In the last year, it reduced its backlog. It reached out to customers to divert product sales to those who needed it sooner. Still, it has a $19 billion backlog and strong order volumes.

The U.S. trade restrictions with China will have a negative $2.5 billion impact. China is an important market for Applied. Near-term uncertainties surrounding the restrictions might weigh on the stock.

Best Buy (BBY)

A photo of a Best Buy store front.
Source: Ken Wolter / Shutterstock.com

Best Buy (NYSE:BBY) is a dominant electronic retailer. In the third quarter, it raised its guidance and resumed its buyback program.

The company expects comparable sales to fall by around 10% in the fourth quarter. To increase shareholder returns, it will buy back around $1 billion in stock this year.

To sustain profit margins, Best Buy exited its operations in Mexico. It invested in Totaltech Best Buy Health. In addition, it remodeled its retail stores to improve the customer experience.

Investors are confident that the short-term costs will pay off in the long term. BBY stock rallied from sub-$65 lows in Oct. 2022 to trade above $80.

When it reports Q4 results, look out for minimal discounts and effective advertising to boost profits. Consumers still have a high demand for televisions, virtual reality, and health and fitness products.

CVS Health (CVS)

earnings reports cvs
Source: Shutterstock

The pharmacy services business is the biggest business for CVS Health (NYSE:CVS). It continues to grow, thanks to its strong offering and superior specialty pharmacy performance.

CVS enjoyed a strong insurance business in the last year. It benefits from government programs that support the unit’s growth. Covid-related product sales may slow after the pandemic ended. However, non-Covid utilization will strengthen its pricing.

In the next quarterly report, expect seasonal tailwinds lifting revenue. For example, the flu season should lift customer traffic at CVS pharmacies. Conversely, the flu season costs $400 million for the company’s Aetna business.

CVS has a thriving medical business. It expects the unit will fare better than historical levels. The company has a longer-term opportunity to grow Medical One in the employer retail health space.

Kraft Heinz (KHC)

A photo of both the Kraft and Heinz logo
Source: Eyesonmilan/Shutterstock.com

Kraft Heinz (NYSE:KHC) posted net sales rising by 2.9% in its third quarter. For 2022, it expects adjusted EBITDA of up to $6.0 billion.

In August, Kraft Heinz introduced a new price increase. The demand elasticity proved to be stronger than management expected. This lifted its top-line results. In addition, shipment activity did not face any delays like it did in early 2022.

KHC is growing its private label brand. It increased its average market share in its portfolio to around 11%. In addition, the company increased private label prices, following the rest of the players.

For now, consumers aren’t indicating any behavior shifts. This suggests that Kraft Heinz has a resilient brand.

Target (TGT)

an image of bullseye the target dog in a target store
Source: Robert Gregory Griffeth / Shutterstock.com

Target (NYSE:TGT) may experience a slowdown as consumers spend more cautiously. The retailer increased markdowns to sell more inventory items. This pressures margins in the near term.

Once the company lowers inventory levels, it will work on its profitability growth over the next few years. For example, it has efficiency initiatives that will improve its fulfillment operations.

It will increase the contribution of revenue from its digital business. In 2017, the digital unit accounted for only 20% of its business. Today, it completes nearly all of its digital fulfillment in stores.

United Parcel Service (UPS)

Close up of UPS logo printed on a delivery truck; partial view of the driver sitting at the wheel, waiting at a red traffic light in south San Francisco bay
Source: Sundry Photography / Shutterstock.com

United Parcel Service (NYSE:UPS) is enhancing its products to achieve at least $300 million in cost savings.

In the third quarter, driver idle time decreased, resulting in a 13% increase in efficiency. In addition, UPS cut its overtime hours for drivers.

The company invested to reduce transit times. For example, it offered a seven-day residential service and Saturday pickup for business customers. This increases satisfaction levels and will lead to market share gains.

UPS is already gaining market share in the U.S. Transit time advantages in Europe are also paying off. Still, Europe’s macro environment remains challenging.

Investors should expect UPS to improve the customer experience in Europe. This will keep it ahead of the competition, lifting package volumes and revenue. CEO Carol Tome said that the company increased its Europe export volume in the third quarter.

UPS is improving its delivery density through logistics-as-a-service. Through its partners, it improved visibility from the manufacturer to the distribution client.

Walmart (WMT)

Image of Walmart (WMT) logo on Walmart store with clear blue sky in the background
Source: Jonathan Weiss / Shutterstock.com

Walmart (NYSE:WMT) entered the holiday period with a healthy level of inventory. It ran promotions during the December period to stimulate sales growth.

Recognizing that customers need fresh food and dairy products, Walmart priced them competitively. This will drive customer traffic into stores. It will encourage them to consider buying other general merchandise while they are there.

Besides competing with other retailers on price, Walmart has a healthy product mix that will appeal to customers. In addition, it may lean on membership income, advertising income, and other data monetization income opportunities. The company is investing in building a fulfillment services business, too. These activities will increase Walmart’s profit margins in the year ahead.

Inflation adds to Walmart’s operating and input costs. It will hurt customer disposable income levels. However, the company will hold prices to last year’s levels to stay competitive. Once it raises prices slightly to widen the gap, Walmart’s profits will grow at a healthy rate again.

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.

Article printed from InvestorPlace Media, https://investorplace.com/undervalued-high-growth-stocks/.

©2024 InvestorPlace Media, LLC