With short sellers viciously attacking many popular stocks and Wall Street worrying too much about the macroeconomic outlook, there are a multitude of undervalued growth stocks for investors to buy now.
Plus, three recent factors have increased my optimism about growth stocks.
One data point was America’s Services PMI for April which climbed to 51.9 from 51.2 in March, showing that services, which drive the U.S. economy, are continuing to expand. Secondly, as of May 4, the Atlanta Federal Reserve was estimating that U.S. GDP would jump 2.7% this quarter.
Third, a 9% rebound in one of my favorite stocks — Stem (NYSE:STEM) — in the wake of its first-quarter earnings has made me positive. Stem, which uses its AI to optimize energy storage systems, had tumbled 55% over the last year as short sellers dove into the name.
If Stem can mount a big rally despite the market’s gloomy mood, I’m confident that many other beleaguered growth names can follow suit.
Stem (STEM)
Speaking of Stem, the company continues to grow at a blistering pace and the valuation of STEM stock has become tiny after its massive tumble.
The company’s top line shot up 63% last quarter versus the same period a year earlier, while its bookings more than doubled to $364 million. Likewise, its contracted backlog jumped to $1.24 billion from $565 million at the end of Q1 2022.
Further, Stem’s software services revenue, which likely carries very high margins, jumped 14% this quarter. Also importantly, Stem reported that it expects the supply chain issues hurting its solar business to greatly ease in the second half of this year.
And as I’ve noted previously, I expect Stem to get a big boost down the road from its deal to provide energy storage optimization software to ChargePoint (NYSE:CHPT), one of the leading companies in the EV charging space.
Stem is trading for roughly 2x analysts’ average 2023 revenue estimates for the company.
ImmunityBio (IBRX)
In a previous article, I noted that 91.4% of patients with a type of bladder cancer who received ImmunityBio’s (NASDAQ:IBRX) protein treatment “were able to avoid having their bladder removed [while] none of the patients died.”
I added that “Given that the patients in the trial had been unresponsive to standard treatments, these were superb results.” I also reported that the protein had shown very promising results in a Phase 2 trial involving pancreatic cancer patients.
On April 25, ImmunityBio founder and chairman Dr. Patrick Soon-Shiong was slated to deliver a lecture entitled “Activating Natural Killer and T Cells to Induce T Cell Memory for the Treatment of Cancer: The Cancer Moonshot” at the Uniformed Services University of the Health Sciences in Bethesda, Maryland. Natural killer and T cells are parts of the human immune system.
I’ve been unable to ascertain what Soon-Shiong said on April 25. But, in a potentially related development, since April 27, the stock has taken off like a rocket ship. After closing at $2.26 on April 26, it finished at $2.62 on April 27. On May 4, it finished the day at $3.87.
I believe that some investors, either through Soon-Shiong’s speech or another source, have obtained very positive information. The FDA is slated to decide whether to approve it later this month.
With IBRX trading at a market capitalization of just $2.4 billion, I think that the shares are still tremendously undervalued given the great potential of the company’s cancer treatment.
Schrodinger (SDGR)
Schrodinger’s (NASDAQ:SDGR) system uses physics and artificial intelligence to greatly speed up the drug discovery process.
Showing the great potential of the company’s technology, it received a $25 million payment from Bristol-Myers (NYSE:BMY) last quarter. SDGR received the payment because a “precision oncology program” that it licensed to BMY had reached “development candidate status.” SDGR noted that it was “continuing to work with BMS on oncology, immunology and neurology programs.”
Also noteworthy is that in October, SDGR signed a collaboration deal with another giant drug maker, Eli Lilly (NYSE:LLY). This agreement could be worth as much as $425 million for SDGR.
Finally, in more encouraging news, Schrodinger noted that it had launched new studies of its blood cancer drug, SGR-1505.
Schrodinger’s market capitalization of just over $2 billion far undervalues its huge, long-term potential in the drug discovery and development sector.
Darling Ingredients (DAR)
Darling Ingredients (NYSE:DAR) is a great play on the growing demand for sustainable airline fuel (SAF). In January, Darling and Valero (NYSE:VLO) committed to investing $315 million to enable their joint venture to produce SAF at its Texas plant. As a result, the plant is expected to be capable of producing about 470 million gallons of SAF annually.
“Airlines have committed to achieving net zero carbon emissions by 2050” and are actively looking for viable sources of SAF, with their demand greatly outsourcing supply at this point. Moreover, Inflation Reduction Act provides tax credits for SAF and “the EU is planning to mandate that airlines uplift at least two percent SAF at every European airport from 2025.”
With DAR stock trading at a rather small forward price-to-earnings ratio of 11x, I believe that the shares do not come close to reflecting the huge revenue and profits gains that the company will likely realize from SAF.
Volkswagen (VWAGY)
Volkswagen (OTCMKTS:VWAGY) reported sterling Q1 results on May 4 and the automaker’s stock appears to be tremendously undervalued.
The company’s deliveries jumped 7.5% last quarter. Moreover, excluding commodity hedges, its operating profit jumped 35% YOY. The latter figure shows that its profitability is greatly increasing. And Volkswagen has a huge backlog of 1.8 million vehicles in Europe alone.
Volkswagen sold 141,000 battery-electric vehicles in Q1 and is on pace to meet its goal of 10% of its deliveries in 2023 being EVs.
Plus, the company believes that it can raise its EV margins to equal those of its gasoline-powered vehicles.
The shares are changing hands for a forward price-to-earnings ratio of just 5.2x and now have a hefty 5.5% dividend yield.
Freeport-McMoran (FCX)
Copper and gold producer Freeport-McMoran (NYSE:FCX) is greatly undervalued. Based on its price projections of $4 per pound for copper and $2,000 per ounce for gold for the rest of this year, the company estimates that its 2023 operating cash flow will come in at about $7 billion. That means that the shares are currently changing hands for just 7.3x its 2023 operating cash flow forecast.
Moreover, copper is a major component of electric vehicles and renewable energy projects, so the metal’s price should climb over the long term. Seeking Alpha columnist Stone Fox Capital estimates that, if copper prices reach $5 per pound, the company’s annual operating cash flow would reach $11 billion.
Additionally, even though I anticipate that inflation will greatly decelerate going forward, I expect gold prices to remain elevated. This is partly because inflation is likely to remain over 2% for some time in both the U.S. and the E.U. Moreover, geopolitical tensions are likely to remain high, and the sanctions that the U.S. leveled against Russia are likely to result in continued downward pressure on the dollar.
Elbit Systems (ESLT)
Elbit Systems (NASDAQ:ESLT) is at the forefront of two areas with great outlooks: missile defense and drones. On the missile defense front, Elbit received a deal to sell missile defense systems to NATO for the alliance’s “tanker transport plane fleet.” The deal shows that the world’s most advanced militaries want to utilize Elbit’s missile defense systems.
As of the end of 2022, Elbit reported that its backlog had exceeded $15 billion, marking a new record.
Moreover, ESLT is developing a plane-based version of a very low-cost laser missile defense system. Showing the great potential of the program, Lockheed Martin (NYSE:LMT) disclosed that it was helping to develop the land-based version of the system in partnership with Rafael Advanced Defense Systems.
The use of drones is constantly expanding, and Elbit’s has innovative drones.
Over the longer term, the company expects its top line to reach $6 billion to $7 billion “with improved profitability and cash generation.” Yet, despite all its positive catalysts, the company’s market capitalization is just $8.6 billion.
— Larry Ramer
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Source: Investor Place