3 Growth Stocks Trading at Reasonable Prices - Cabot Wealth Network

3 Growth Stocks Trading at Reasonable Prices

It’s no secret, the markets have handsomely rewarded investors for the past few years. In 2016, the Dow Jones Industrial Average handed happy investors a 13.4% gain. And then—in a surprise to almost everyone I know in the investment field—since the U.S. Presidential election, we’ve seen a rise of 15.1% in the Dow. And that’s in just four months! If you like growth stocks, it’s been a good time to invest.

That said, one might be forgiven for thinking, how long can this last? Yet, investor and advisor sentiment remains bullish. Each month, for my Wall Street’s Best Investment and Wall Street’s Best Dividend Stocks subscribers, I review the investment sentiment from three well-known and widely-followed publications.

Yesterday, I updated my monthly figures, and here’s the latest on sentiment:

Publication Bulls Bears Neutral/Correction
American Association of Individual Investors 28.3 39.6 32.1
Investors Intelligence 55.8 18.3 25.9
Timer Digest 70 10 20

Both Investors Intelligence and Timer Digest surveys are comprised primarily of investment pros, whereas AAII members are, for the most part, individual investors. And here you see that the pros are very bullish, while individual investors are a bit more cautious. That’s pretty normal. In fact, most of us in the business get a little worried when individual investors become overly bullish!

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I see the same positive bias from the contributors to my Wall Street’s Best newsletters. Again, bullish long term, with some short-term volatility thrown in.

And our market experts at Cabot Wealth tell me their models are also indicating long-term bullish sentiment.

That’s great news, but seasoned investors also know that many stocks and sectors have risen far and fast. That doesn’t mean they can’t continue their upward momentum, but those of us who fall more into the conservative camp like to find growth stocks that are priced at a discount. And these days, they are more difficult to ferret out. But not impossible.

Where are the Bargain Stocks? 

I set myself a task this week to answer this question: “With so many investments reaching 52-week highs, which sectors and stocks appear undervalued at this time?”

I first reviewed the winners for the past year and year to date. Here are the top three sectors with the biggest gains:

Sector 1-Year Return Sector YTD Return
Financials 32.4% Technology 9.5%
Technology 22.6% Healthcare 8.0%
Industrial 22.1% Consumer Discretionary 7.8%

Next, I ran a stock screen with the following parameters, without regard to sector, just to see what came up:

  • Positive institutional action
  • Average trading volume more than 300,000 shares
  • Buy rating
  • Price above 200-day moving average
  • Positive EPS growth estimated for next five years
  • Positive sales growth for past five years
  • Positive sales growth quarter over quarter
  • Dividend payer

My search returned 58 companies. I then ran the stocks through additional technical screens to find out which ones were technically attractive (in other words, are the indicators saying Buy?). That narrowed the field to 21. I winnowed them down further by dividing the stocks between buy and buy now. That left me with nine growth stocks. From those, I chose three that have been recently recommended by the contributors in my Wall Street’s Best newsletters.

Three Growth Stocks to Buy Now

Interestingly, two are in the Industrial Goods sector (1-year return: 22.1%; YTD: 5.6%) and the other is in the Consumer Discretionary category (1-year return: 14.7%; YTD: 7.8%).

Company Symbol P/E Analyst Ranking
Constellation Brands STZ 22.6 2.1
Ingersoll-Rand IR 14.6 2.2
Waste Management WM 27.3 2.3

Here’s what our contributors had to say about their recommendations:

Constellation Brands (STZ) Martin D. Weiss, Martin’s Ultimate Portfolio

“The company has rock-solid fundamentals:

  • Constellation’s leading market initiatives include outstanding routes to market and solid sales channels.
  • Its increased focus is on “premiumization”—the transition of key STZ products from mass market to higher margin premium brands.
  • Key acquisitions include the company’s purchases of Meiomi luxury wine brand (#1 pinot noir), Ballast Point (fast growing craft beer) and Prisoner Wine (super-luxury wines Saldo, Cuttings, and others).
  • Outstanding performance of Constellation’s existing brands including Corona Extra (#1 imported beer), Kim Crawford (#1 sauvignon blanc), and Modelo Especial (#1 dollar-gainer in the U.S).”

Ingersoll-Rand (IR) Charles A. Carlson, DRIP Investor

“Ingersoll-Rand is involved in heating and air conditioning systems, commercial and residential building services, and temperature-controlled transports solutions to fluid-management equipment, power tools, and golf and utility low-speed vehicles.

Ingersoll-Rand is coming off a decent third quarter in which profits and revenue beat the consensus estimates.

The firm recently boosted its dividend 25%. It was the second dividend hike in the last 12 months and highlights the company’s confidence in its future. Ingersoll-Rand raised its guidance for 2016 overall, and a strengthening economy bodes well for accelerated revenue growth in 2017. I look for the stock to handily beat the market in 2017.”

Waste Management (WM) Sean Christian, The Personal Capitalist

“Waste Management is the leading provider of comprehensive waste management services in North America. It provides collection, transfer, recycling and resource recovery, and disposal services. It is a leading developer, operator, and owner of landfill gas-to-energy facilities in the United States.

“For Waste Management’s fourth quarter, revenues were $3.46 billion vs. $3.25 billion for the same period in 2015. Net income was $335 million or $0.075 per diluted share vs. $273 million or $0.61 in 2015. For the full year, revenues were $13.6 billion vs. $13 billion in 2015. Earnings per diluted share were $2.65 vs. $1.65 for the full year 2015. For the full year, the company returned $1.45 billion to shareholders through $726 million in dividends and $725 million in repurchases.

“Estimates by the company for 2017 are earnings per diluted share are expected to be between $3.14 and $3.18. Cash flow is expected to be between $1.5 and $1.6 billion.”

All three growth stocks have seen share gains since our contributors’ recommendations, but still look attractive, fundamentally as well as technically.

Nancy Zambell

Learn from Expert Analyst Nancy Zambell

Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. As a lecturer and educator, Nancy has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show. She has also taught finance, economics and banking at the college level, and has been quoted extensively in The Wall Street Journal, Investor’s Business Daily, USA Today, and BusinessWeek. Now let her give you the tools and resources, including a monthly magazine, for gaining the peace-of-mind to live comfortably now and in retirement in her Cabot Money Club.

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