In this article, we will look at the 8 Most Undervalued Growth Stocks To Buy According To Wall Street Analysts.
Will There Be Another 50 Basis Point Cut Considering the Jobs Report?
Analysts and the market blamed the Fed for not cutting the interest rate earlier in July. However, the sentiments seemed to have shifted with the recent jobs report with above-expectation data. The data from the Job market shows that Nonfarm payrolls increased by 254,000 in September and unemployment rates fell to 4.1% from 4.2%.
These new statistics are making the market think, was the 50 basis point too much another question that comes up is what the Fed will do in the next meeting. Sylvia Jablonski, Defiance ETFs CEO and CIO joined CNBC to talk about the issue recently. She mentioned that Fed is data dependent and every move they make is based on the latest available data. The market was questioning the Fed for the delay in rate cuts, however, the data that the Fed had at the time was pointing towards the job market going the other way. Jablonski thinks that they made the right call to cut the interest rates by 50 basis points. However, with the current jobs market report it is difficult to expect another 50 basis point cut. She thinks that it will either be by a 25 basis point cut or no cut at all.
As of now the market seems to be doing good, the job numbers came in above expectations, and wages are good which tells that the consumers are likely to spend more which will be feasible for the economy. Jablonski also mentioned that the S&P 500 has been up by 20% in 2024 and thinks that the earnings for stocks are strong.
The analysis pointed out by Jablonski and many other analysts currently is pointing towards a soft landing scenario becoming more and more feasible. This becomes particularly important for the growth stocks. Historically speaking value stocks have outperformed growth stocks, however, this has not been the case for the past 10 years. Moreover, according to Ben Snider, growth stocks tend to perform better in a slowing economy with the Federal Reserve cutting rates.
One of the key points to note here is that analysts are suggesting diversifying the portfolio, to look beyond technology stocks and quality growth stocks that have good earnings and prospects of sustained growth. We covered Ben Snider’s interview in 7 Unstoppable Growth Stocks To Buy Now. Here’s a piece from the article:
“On August 15, Ben Snider from Goldman Sachs appeared in a CNBC interview and mentioned that he still prefers growth stocks over value stocks but emphasized diversified portfolios. He pointed out that the base case is not the economy running into recession, it is quite the opposite as the data suggests. Ben Snider believes that the economy continues to grow and backed his arguments by mentioning the second quarter earnings season growth, the S&P 500 growth, and the Federal Reserve rate cuts. Therefore the base case as per Snider is higher equity prices by the year end.
While elaborating on his statement about growth stocks, Ben Snider pointed out that an environment of slowing but healthy economic growth along with falling interest rates have historically supported growth stocks over value stocks.
Most importantly, Snider emphasized that there is a risk for some extremely large stocks both from a positioning point of view and from their inability to maintain very strong rates of growth. In addition, the AI bubble problem along with very high analyst expectations have priced these stocks to an extremely overvalued situation.
The solution, as presented by Snider, is to adopt a more diversified approach and go for a selection of smaller tech stocks along with other high-growth industries. Some of the major growth industries mentioned during the interview were smaller tech stocks, the healthcare industry, and some other European stocks that are on the verge of cutting-edge innovation.”
What are the Broader Implications for Tech Stocks?
The technology sector is one of the main contenders when it comes to growth stocks. Ray Wang, principal analyst and founder of Constellation Research, appeared on CNBC to talk about the broader implications for tech stocks. Wang noted that Wall Street’s favorite chip maker is “priced for perfection”. He anticipates strong earnings due to widespread investments in AI and data center chips across the tech sector. A significant point raised by Wang was the trend of reallocating cybersecurity budgets to fund AI initiatives. Wang suggested that companies believe enhancing AI capabilities could improve their cybersecurity resilience, although this approach carries risks if a major cybersecurity breach occurs.
Wang has stakes in all seven companies in the Magnificent Seven and believes they represent a solid investment thesis amid falling interest rates. He also acknowledged that many analysts believe that falling interest rates are more favorable for other stocks excluding the Magnificent Seven, however, he thinks that big tech stocks are safer and better positioned for growth in the current climate situation.
Wang also made an interesting comparison between the historic time of the internet boom and today’s AI and data center revolution. He highlighted that unlike the decentralized nature of the internet era, today’s tech landscape is more centralized, with fewer dominant players. Thereby indicating that there will be fewer winners with more gains in the tech sector.
Let’s now look at the 8 most undervalued growth stocks to buy according to Wall Street analysts.
A close-up image of a stock market graph displaying the growth of the company’s mutual funds.
Our Methodology
To compile a list of the 8 most undervalued growth stocks to buy according to Wall Street analysts, we used the Finviz stock screener and CNN. Using the screener, we sifted through high-growth industries including Technology, Biotechnology, Renewable Energy, and more to get an aggregated list of 20 undervalued growth stocks.
Our criteria to call a stock cheap/undervalued is as follows: Forward P/E below the market average i.e. 24.35 (as per the Wall Street Journal) and earnings growth positive for the current year, both sourced from Yahoo Finance.
Once we had the list of undervalued growth stocks, we then ranked these stocks based on the analyst upside potential sourced from CNN. The list is ranked in ascending order of the analyst upside potential. Moreover, please note that the indicators used in the article were recorded on October 7th, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Undervalued Growth Stocks To Buy According To Wall Street Analysts
8. Dell Technologies Inc. (NYSE:DELL)
Forward P/E: 15.31
Earnings Growth: 10.20%
Number of Hedge Fund Holders: 88
Analyst Upside Potential: 16.26%
Dell Technologies Inc. (NYSE:DELL) ranks 8th on our list of most undervalued growth stocks to buy according to Wall Street analysts. 29 analysts have a strong Buy rating on the stock with their median price target presenting a 16% upside from the current levels.
The company is a renowned player in the technology sector, it develops and sells computer technologies and software. One of the reasons that has brought the company to the spotlight is its indispensable place in providing technologies for artificial intelligence and data center growth. The company has recently gone through a strategic transformation and is now focusing on developing itself as a leader in the AI server industry.
Dell Technologies Inc’s. (NYSE:DELL) Infrastructure Solutions Group (ISG) develops AI servers. During the second quarter results of 2024, the company demonstrated its capacity to dominate the server market. The segment revenue which was driven by its AI server sales reached a record high of $11.6 billion after improving around 38% year-over-year.
What’s more impressive is the fact that around 80% of this growth was attributed to the growing wins in the AI server. Recently, the CEO of Tesla and xAI, Elon Musk mentioned on Twitter Dell Technologies Inc’s. (NYSE:DELL) being one of the companies that will supply servers for his startup xAI. This is not the only big win for the company, Dell Technologies Inc’s. (NYSE:DELL) has partnerships with other companies as well, which puts the company on the growth trajectory for years to come.
On top of that, its cheap valuation puts it at a sweet spot for risk-tolerant investors. DELL is trading at only 15 times its forward earnings with analysts expecting its earnings to grow by 10.20% during the year.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
7. First Solar, Inc. (NASDAQ:FSLR)
Forward P/E: 17.12
Earnings Growth: 75.50%
Number of Hedge Fund Holders: 66
Analyst Upside Potential: 26.98%
If you are looking for a growth stock that is trading at a discount with earnings expected to grow more than 75% during the year, First Solar, Inc. (NASDAQ:FSLR) might be one of the stocks you want to add to your portfolio.
It is a solar technology company that focuses on producing solar panels and photovoltaic (PV) modules that convert sunlight to electricity. The industry associated with the business model of this company is riding two major tailwinds. One of the tailwinds comes from the government agencies, which are looking forward to transforming energy generation from traditional methods to renewable sources of energy, which includes solar. The other tailwind originates from the data center and artificial intelligence industry which needs a massive amount of renewable energy to keep its operations running while causing less damage to the climate.
The strong demand for renewable energy is helping First Solar, Inc. (NASDAQ:FSLR). During the second quarter of 2024, it was able to improve its revenue by 24.7% to $1.01 billion and EBITDA by 95% year-over-year. The company has also maintained high margins benefiting from the increased selling price. In Q2 2024, margins came in at more than 49%.
What’s more impressive about First Solar, Inc. (NASDAQ:FSLR) is its growing total bookings backlog, which stands at 75.9 GW extending through 2030, indicating sustained growth for the long term. FSLR is one of the most undervalued growth stocks to buy according to Wall Street analysts.