Five growth stocks that are also great values

 

Two things that every investor is constantly seeking are growth and value. Both are crucial to long-term investing success in any market condition, but they are of particular importance at this time while the overall market is trading near record levels.

When looking for growth, you want to see how strongly a company is growing its earnings. Earnings are the key, and the ability to grow earnings is crucial for any company’s long-term prosperity.

Finding value is a little trickier. The quickest metric is a stock’s price-to-earnings ratio. The lower the P/E ratio the better, but you can gauge a stock’s value purely with its P/E. You have to take into consideration the company’s future growth estimates in order to determine whether or not the stock looks attractive, since a stock will have to rise in value as earnings rise in order to keep the P/E level.

When you can combine a stock with an attractive P/E and strong growth estimates, you can find growth at a reasonable price. If you are worried about a potential summer sell of in the markets, the best way to protect against such a move would be to find growth stocks that are trading at attractive prices.

The following five stocks all offer good growth at a reasonable price.

Lear Corp.

Lear Corp. (LEA) is an auto parts company whose primary business is manufacturing automotive seating and electrical distribution systems. The stock has been solid in recent years as the overall auto industry has improved, but shares have been trading sideways through 2017. The company’s most recent quarterly report in April showed much better than expected earnings and revenues. The stock has a very attractive valuation, with a P/E of just 9.5, and analysts see earnings rising by 13.7% in 2017 and an additional 7.2% in 2018. Auto sales continue to be strong, and if the company is able to hit its future earnings growth estimates the stock should break out of its sideways trend and build on previous gains. Over the last five years, Lear has grown earnings by 26.8% per annum.

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Chart courtesy of www.stockcharts.com

Apple Inc.

Apple Inc. (AAPL) showed some weakness in 2015 and the first half of 2016 as Wall Street worried about slowing iPhone sales, but the stock has rebounded nicely over the last year, and shares are now trading just shy of a record high. Earnings are growing, with analysts expecting to see growth of 7.7% during the current year, and by 14.9% in 2018. With a P/E of 17.7, there is plenty of reason to expect shares to build on recent gains if the company is able to hit its future growth estimates. Over the last five years, Apple has grown earnings by 9.7% per annum.

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Chart courtesy of www.stockcharts.com

Dycom Industries

Dycom Industries (DY) is a specialized contracting company. The stock recently made a strong move higher in response to a much better than expected quarterly report at the beginning of March. With the stock’s recent move higher, shares are now trading just shy of a record high, but the valuation remains attractive. DY has a P/E of 21.8, with estimates calling for earnings growth of 22.1% during the current year, and 16.8% in 2018. The company has a great track record of posting better than expected numbers, so the actual growth rates could be well above what analysts have modeled into the stock. The company will next report earnings on May 31, with the consensus calling for $1.20 per share, up from $1.08 during the same period last year. Over the last five years, Dycom has grown earnings by 36.3% per annum.

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Chart courtesy of www.stockcharts.com

Regions Financial

Like most of the financial sector, Regions Financial (RF) enjoyed a strong rally at the end of 2016, but the stock has been moving slightly lower through the current year. The company’s most recent quarterly report in mid-April showed better than expected profit, with sales falling in-line with the consensus. Now that interest rates are starting to rise, the financial sector should enjoy strong earnings growth, as banks are able to generate higher interest income on money they lend out to their customers. With RF’s recent pullback, its P/E has fallen to a low 15.1, and analysts forecast that the company will be able to grow its earnings by 12.6% during the current year, and by an additional 13.3% in 2018. Given the low valuation, and high growth estimates, RF looks like a solid buy at this time. Over the last five years, Regions Financial has grown earnings by 1.5% per annum, so growth is accelerating as rates start to rise. While we would like to see higher past growth, in this case we can overlook the last growth over the last five years since interest rates were held near zero for such a long period following the financial crisis.

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Chart courtesy of www.stockcharts.com

Boeing Co.

Aerospace and defense contractor Boeing Co. (BA) has shown a lot of strength in recent months, mainly a result of President Trump’s pledge to boost spending on the military, but even with the stock shooting to a new record high, it remains an attractive buy candidate. BA is now trading with a P/E of 22.5, which is very attractive when you consider the company’s future prospects as military spending rises. Analysts expect to see earnings growth of 29.7% during the current year, and by an additional 9.5% in 2018. The company reported its first-quarter numbers in late-April, with earnings topping the consensus, while revenues were a little light. Despite the sales miss, the stock did not sell off, which is a clear indicator that Wall Street remains bullish on the stock and expects earnings growth to keep shares moving in the right direction. Over the last five years, Boeing has grown earnings by 14.9% per annum.

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Chart courtesy of www.stockcharts.com

Symbols: AAPL BA DY LEA RF
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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