By Chris Preston, Chief Analyst, Cabot Value Investor
Growth is king in the stock market these days. But that wasn’t always the case.
Since 1927, value stocks have outperformed growth stocks by an average of 4.4% annually. But in recent years, growth titles have far outpaced value, with the Nasdaq up 105% in the last five years vs. a 77% gain in the Vanguard Value Index Fund (VTV). Eventually, the tide will turn again. For now, why try and swim against it? Instead, you can have the best of both worlds by investing in growth at value prices. That means finding companies that are still growing revenue and earnings at a healthy clip but, for whatever reason, have become overlooked by the big institutions that run Wall Street – at least until recently.
That’s my approach in Cabot Value Investor, and it’s one that has worked well thus far, netting my readers numerous big gains in the year since I took over this advisory. Here are three of the biggest growth at value prices stocks I’ve uncovered in the past year.
Capital One Financial (COF)
Capital One Financial is one of those American companies that feels ubiquitous.
From their nonstop television commercials featuring Samuel L. Jackson, Spike Lee, Charles Barkley, and Jennifer Garner (among others) and their catchy, “What’s In Your Wallet?” slogan, to their sponsorship of college football’s Orange Bowl (er, I should say, the “Capital One Orange Bowl”), to its myriad bank branches (it has 280 of them across the U.S.), Capital One seems like it’s been around forever.
And yet, it hasn’t. The company is only 31 years old, founded on July 21, 1994. It’s a diversified bank that provides banking services to consumers and businesses, as well as auto loans. Though it is probably best known for its credit cards, hence the “What’s in your wallet?” tagline. It’s the fourth largest credit card company in the U.S. And it’s about to get even bigger: Capital One just acquired fellow credit card giant Discover Financial (DFS) for $35 billion. Combined, Capital One and Discover become the largest credit card issuer in the U.S., and their $638 billion in total assets ranks them eighth among U.S. bank holding companies.
Even prior to the Discover buyout, Capital One was growing just fine on its own. Its revenues have expanded from $28.5 billion in 2020 to $39.1 billion in 2024; this year, with a major boost from the now-completed Discover deal, they’re expected to swell by a whopping 35%, to $52.8 billion, with another 18% uptick estimated in 2026. Earnings per share are expected to expand 10% this year and by another 23% next year.
Those estimates may even be modest, as they don’t necessarily account for the impact of lower interest rates. Capital One has been growing steadily despite high borrowing costs for things like auto loans and credit cards, which may soon be less of an obstacle.
The bank caught Warren Buffett’s attention two years ago. In May 2023, Berkshire Hathaway disclosed that it had taken a nearly $1 billion stake in Capital One. To be sure, that’s a modest stake by Berkshire’s standards – it represents less than 1% of the company’s portfolio. Nevertheless, COF shares are up 83% since Buffett’s bet on it.
I recommended Capital One Financial to my Cabot Value Investor readers in August 2024. The stock vaulted 25% in the ensuing three months and quickly reached our price target. Even trading near all-time highs, COF remains cheap at just 12x forward earnings estimates. And the completion of the long-delayed Discover deal is a total game-changer.
United Airlines (UAL)
People are flying in planes again.
That would have been a weird sentence to type six years ago. Then Covid happened, and for about two years, people around the world were afraid to travel – and particularly reluctant to travel in tight quarters for hours on end with little ventilation. So, the airlines suffered – all airlines.
In 2019, passenger numbers on U.S. airlines reached a record 926 million. In 2020, the number nose-dived to 371 million. It nearly doubled to 666 million in 2021, but that was still the second-lowest tally this century. But by 2022, passenger numbers had returned to “normal,” pre-Covid numbers: 852 million that year, 863 million in 2023, with a slight dip back to 850 million last year.
Internationally, the numbers are even more impressive. The global passenger tally in 2024 topped the previous, pre-Covid (2019) record by 3.8%, and this year it’s supposed to be even better, with sales topping $1 trillion for the first time (equal to 1% of the entire global economy!) and traveler numbers exceeding 5 billion passengers, also a first. Global net profits are expected to come in at $36.6 billion, according to the International Air Transport Association (IATA).
So, airlines as a group are flourishing like never before. And United Airlines is the fastest-growing major U.S. airline. The third-largest airline carrier in the world by revenues, behind Delta (DAL) and American (AAL), United is growing faster than either of them, with last year’s revenues ($53.75 billion) coming in 31% higher than pre-Covid levels, and improving 6.3% year over year. Sales are expected to grow another 2.3% this year and another 7% in 2026. For United, business is a third better than it was before Covid – at a time when the rest of the industry’s sales are only about 4% higher.
Meanwhile, the stock is cheap, even after a big run-up in the last year. It trades at a mere 8x forward earnings estimates, with a price-to-sales ratio of just 0.48. The stock initially peaked at 96 a share in November 2018. Last May, it traded as low as 50, and I recommended the stock to my Cabot Value Investor readers. Wall Street quickly took notice of the discount, prompting shares to double by year’s end and delivering a hefty gain for us. The stock has since pulled back to the low 80s, mostly on tariff fears, but sales forecasts remain optimistic. Given the value, I think it’s worth a flyer (pun intended) at current levels.
BYD Company Limited (BYDDY)
BYD (BYDDY) has long been one of China’s top automakers. What really sent its sales into hyperdrive, however, was when it made the switch to all battery electric and hybrid plug-in vehicles in 2022. Revenues instantly tripled, going from $22.7 billion in 2020 (a record, despite the pandemic) to $63 billion in 2022. In 2023, sales improved another 35%, to $85 billion. In 2024, revenues ballooned to $107 billion, or 25% growth, with another 24% growth expected in 2025. The EV maker has emerged as a legitimate rival to Tesla.
But there’s even greater upside. Right now, BYD does roughly 90% of its business in China, accounting for one-third of the country’s total sales of EVs and hybrids this year. The company is trying to change that, recently opening its full-assembly plant outside of China, with a new plant in Thailand starting deliveries. A plant in Uzbekistan puts together partially assembled vehicles. And BYD has plans to open more new plants in Cambodia, Hungary, Indonesia, Pakistan and Turkey. Mexico and Vietnam are possible targets as well. Despite no plans to do business in America just yet, BYD is on the verge of becoming a global brand.
And while BYDDY stock has fared well, it hasn’t grown as fast as the company. At 20.4x earnings estimates, BYDDY currently trades at less than a quarter of its five-year average forward P/E ratio (89.6). And its price-to-sales ratio (1.3) is about half the normal five-year ratio. As BYD continues to expand globally, look for its valuation to catch up with its industry-leading performance.
We added BYD shares to the Cabot Value Investor last November, when they were trading at a mere 67. They are now north of 100 a share, with new developments like autonomous driving in most of its models, the fastest-ever car battery charger (capable of fully charging up to 300 miles in just five minutes!), and sales in Europe topping rival Tesla’s for the first time ever earlier this year. So, the sky’s the limit for this stock. Its performance in the next 10 years may not mimic Tesla’s in the last 10. But I fully expect it to be one of the market’s great growth stocks for years to come – and it’s still trading at value prices.
