Are you a growth investor or a value investor? If you don’t know, you’re not alone.
I find that a lot of investors are perplexed about the differences between growth stocks and value stocks. The confusion is created because the two types of investing are intertwined. Growth investors are looking for companies with good growth prospects that are fairly valued or undervalued. Value investors are looking for undervalued stocks with good growth prospects.
Simply stated, growth investors place their priority on growth with value secondary, whereas value investors’ priorities are reversed.
Valuation is at the center of all investing. Even if you are a growth investor, your selections should be based on the value of the company. If two companies’ sales and earnings are growing at the same rate and their future growth prospects are exactly the same, it would be nice to know if one is a bargain and the other is overpriced. Based on estimates, is one company selling at a much lower price-to-earnings ratio than the other?
Using the appropriate measures, it makes sense to look beyond growth prospects to determine the intrinsic value of each company.
On the other hand, if two companies are valued with the same price-to-sales, price-to-earnings, and price-to-book-value ratios, but one company is set to grow at a 15% clip during the next five years and the other company is not likely to grow at all, you definitely will want to invest in the company with good growth prospects and pass on the undervalued stock with little or no growth potential.
We can draw a simple conclusion here: Don’t invest unless you bring both growth and value into your analysis. Ignoring either one will eventually get you into a heap of trouble.
Ten Undervalued Stocks to Buy
I rank stocks according to four criteria: the quality of the company, the value of the company, history and future of sales and earnings growth, and the recommendations of the leading research firms.
For this story, I searched for high quality, undervalued stocks currently recommended highly by Zacks, Investors Business Daily (IBD), Value Line or Standard & Poor’s. Here are 10 leading companies that I recommend you buy at today’s price. For more details on these 10 stocks as well as Maximum Buy and Minimum Sell targets, consider taking a trial subscription to Cabot Benjamin Graham Value Investor.
1. Alliance Data Systems (ADS) provides data-driven and loyalty transaction-based marketing services to businesses in a variety of industries. Standard & Poor’s awards the company 5 Stars (best appreciation potential within the next six to 12 months), a Fair Value Rank of 5 (most undervalued) and a B+ Quality Rating (above average).
2. Alphabet (GOOG), formerly Google, operates the world’s leading internet search engine. The company’s unique page ranking and text-matching technology provides superior search results for users. The company is rated 86 by IBD out of a possible 99 in the Composite Rating category. IBD attaches an EPS (earnings per share) Rating of 92 to Google.
3. AT&T (T) is the largest telecommunications company in the U.S. Services and products include wireless communications, data/broadband and internet services, video services and telecommunications equipment. The company is ranked as a strong buy by Value Line Investment Services.
4. CVS Health (CVS) is the leading pharmacy and drug management services chain in the U.S. During the past several years, the company has made several major acquisitions which have helped CVS to increase sales and earnings at a steady 12% to 15% pace. The company has achieved top ratings from Standard & Poor’s: 5 Stars, Fair Value Rating 5 and Quality Rating of A+ (best).
5. Danaher (DHR) designs, manufactures and markets professional, medical, industrial and commercial products, including test equipment used in the manufacturing and advanced technology industries, diagnostic equipment used in the healthcare field, diagnostic equipment used by dentists, and packaged food identification systems. The company’s IBD Composite Rating is 99, and it’s rated 89 for EPS growth.
6. FedEx (FDX) provides domestic and international shipping services for delivery of packages and freight via ground or air transportation. FedEx Office, formerly Kinko’s, provides business services such as printing, copying and sign and banner making to customers and the company’s own needs. The company has achieved high ratings from Standard & Poor’s: 5 Stars, Fair Value Rating 5 and Quality Rating of B+.
7. IntercontinentalExchange (ICE) owns and operates the leading worldwide electronic marketplace for trading futures and over-the-counter (OTC) energy and soft commodities contracts. Cost reductions from the NYSE Euronext acquisition are ongoing, and should continue to lift earnings. The company has also achieved high ratings from Standard & Poor’s: 5 Stars, Fair Value Rating 4 and Quality Rating of B+.
8. Priceline Group (PCLN) provides online hotel, airline, restaurant and auto rental search and reservation services. The company connects consumers wishing to make travel reservations with providers of travel services around the world. The company’s IBD Composite Rating is 85, and rated 95 for EPS growth.
9. UnitedHealth Group (UNH) is a diversified health care company. UnitedHealth offers a comprehensive array of health benefit plans and services for individuals including Medicare beneficiaries, and for the employees of organizations of all sizes. The company rates a Buy from Zacks and has achieved ratings of 94 and 86 for Composite and EPS Ratings from IBD.
10. Zimmer Biomet Holdings (ZBH) designs, manufactures and markets products and solutions to help treat patients suffering from bone, joint and soft tissue disorders and injuries. Zimmer rates a Buy from Zacks, a Strong Buy from Value Line, and is rated 96 and 90 for Composite and EPS Ratings from IBD.
If you would like my complete analyses for all 10 companies with my exclusive Maximum Buy and Minimum Sell targets for each stock, I have a super deal for you—a special report with all 10 analyses and a one-year subscription to my Cabot Benjamin Graham Value Investor for a super-low price.
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Until next time, be kind and friendly to everyone you meet.