Growth stocks tend to be exciting: The companies behind them typically expand their earnings at a fairly rapid clip, with stock shares following suit. But there’s a problem — growth stocks aren’t always attractively valued. If you buy one when it is overvalued, it stands a decent chance of going down in the near term.
So you might consider becoming more of a value investor, looking for great undervalued stocks. Better yet, you can look for fast-growing companies with undervalued shares. If you find them, you’ll have stocks that show both growth and value.
Here are three stocks that look significantly undervalued, and each of them could be considered a growth stock, as well. They’re solid candidates if you have $5,000 to spend — and even if you have $1,000 or $50,000 to spend.
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1. Meta Platforms
Meta Platforms (NASDAQ: META) is the company you may know as Facebook, but it changed its name in 2021 to reflect the scope of its operations and ambitions beyond its original social media platform. Its social media operations are quite large, however, with nearly 3 billion monthly active users and nearly 2 billion daily active users for Facebook alone. When you add in its other platforms — which include Instagram, Messenger, and WhatsApp — it has close to 3 billion daily active users.
Meanwhile, according to the company, “Meta is moving beyond 2D screens to immersive experiences like augmented and virtual reality to help build the next evolution in social technology,” — so others its main division, “Reality Labs.” Right now, it’s far from a big money-making business, but management has high hopes for it. The company is also chasing additional revenues from expanded e-commerce operations, greater use of artificial intelligence for driving content recommendations, and its answer to TikTok videos — reels.
So why might Meta Platforms be a value stock? Well, its recent performances have disappointed investors, and their responses to its results, along with the overall market slump, have sent its shares down nearly 60% from their 52-week high. Today, they trade at a forward price-to-earnings ratio of 14, below their five-year average of 27. This could be a great buying opportunity for long-term believers in Mark Zuckerberg and his business.
2. Service Now
Service Today (NYSE: NOW), has a market cap of more than $90 billion, but its shares have fallen this year to about 36% below their 52-week high. The software-as-a-service company describes itself like this: “Our cloud-based platform and solutions help digitize and unite organizations so they can find smarter, faster, better ways to streamline workflow” and to “enable employees and customers to be more connected, more innovative, and more agile.”
Its second quarter featured subscription revenue of $1.7 billion, up 25% year over year, and total revenue of $1.8 billion, up 24%. Subscription revenue can be a big plus for a business, as it often continues to recur regularly, making it easier for management to plan. The company also noted: “ServiceNow continues to expand its global footprint with more than 100 customers now paying over $10 million in annual contract value by Q2 2022, up more than 50% year-over-year. “
Clearly, it’s an attractive business — and it’s trading at attractive levels, too, with a recent forward-price-to-earnings ratio of 52, well below its five-year average of 80 .
3. ASML Holding
based in the Netherlands ASML Holding (NASDAQ: ASML) is, in its own words, “a leading supplier to the semiconductor industry. The company provides chipmakers with hardware, software and services to mass produce patterns of integrated circuits (microchips). Together with its partners, ASML is driving the development of more affordable, more powerful, more energy-efficient microchips.” Its market cap was recently close to $185 billion, and it employs about 35,000 people.
The company’s second quarter report was a bit of a mixed bag. On the one hand, it booked a record level of new orders and the company’s backlog of orders is around 33 billion euros — reflecting the huge demand for its products. On the other hand, the company (like many others) is pressured by supply chain issues and inflation. In response, management lowered its expectations for revenue growth and profitability.
Meanwhile, its shares have recently fallen about 47% from their 52-week high. Yes, it faces some headwinds, but these headwinds are unlikely to last forever. The stock’s recent price-to-cash-flow ratio was recently 20, below its five-year average of 37, suggesting undervaluation. At this level, it should attract the attention of investors.
These are just a few of the many compellingly valued stocks today, and many of these businesses are also growing rapidly. Take a close look at any that interest you to see if they seem worthy of a place in your long-term portfolio.
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Randi Zuckerberg, a former Facebook director of market development and spokesperson and brother of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Selena Maranjian holds positions with ASML Holding, Meta Platforms, Inc., and ServiceNow, Inc. The Motley Fool has positions in and recommends ASML Holding, Meta Platforms, Inc., and ServiceNow, Inc. The Motley Fool has a disclosure policy.