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.
6. Global Payments Inc. (NYSE:GPN)
Forward P/E: 8.49
Earnings Growth: 11.20%
Number of Hedge Fund Holders: 66
Analyst Upside Potential: 33.81%
Global Payments Inc. (NYSE:GPN) ranks 7th on our list of most undervalued growth stocks to buy according to Wall Street analysts. 37 analysts have a consensus Buy rating on the stock, with their 12-month median price target of $132 presenting an upside of 34%.
It is an American financial technology company that makes payment processing services available to various companies. The company operates through three main business areas including Merchant Solutions, Issuer Solutions, and Business Operations.
Merchant Solutions provides tools to accept payments through credit cards, debit cards, and online methods. Moreover, Issuers Solutions allows banks and other financial organizations to manage their credit and debit card programs and also enables business-to-business payments. Lastly, the Business Operations segment accounts for software that enables global payments.
The network of Global Payments Inc. (NYSE:GPN) spans over 4.6 million merchant accounts, with around 4,000 technology partners, and 1,500 financial institutions spread across over 100 industries.
The company is doing great in terms of growing its revenue and business presence. The second quarter of 2024 came in with a 6% increase year-over-year to around $2.32 billion with operating margins up 40 basis points to 45.2%.
Revenue growth was driven by a strong performance in its Merchant Solutions department. During the quarter the segment witnessed double-digit growth in its Independent Software Vendors (ISV) and market bookings which resulted in overall revenue going up 8% year-over-year. The Issuer Segment was also a success with 4% growth during the same time and margins up 10 basis points to 46.8%.
While Global Payments Inc. (NYSE:GPN) is already trading at a discount to its sector. Analysts are expecting its earnings to grow by 11% during the year, making it an attractive investment opportunity.
Parnassus Value Equity Fund stated the following regarding Global Payments Inc. (NYSE:GPN) in its Q2 2024 investor letter:
“Global Payments Inc. (NYSE:GPN) stock fell on investor fears that a slowing economy could weigh on payment processing companies. The company will host an investor day focused on improving efficiencies and strategic redeployment of assets in the fall, which we believe will unlock hidden value in the undervalued shares.”
5. Western Digital Corporation (NASDAQ:WDC)
Forward P/E: 8.41
Earnings Growth: 4045.00%
Number of Hedge Fund Holders: 80
Analyst Upside Potential: 35.64%
Western Digital Corporation (NASDAQ:WDC) is a technology company that specializes in data storage technologies. Its core products include Hard Disk Drives, Solid State Drives (SSD), and Flash Storage devices. These storage devices are used to store large amounts of data quickly in electronic devices and servers. Apart from hard data storage, the company is also involved in cloud storage solutions that allow users to store and access data online through the cloud.
The Western Digital Corporation (NASDAQ:WDC) stands at an indispensable position in the growing memory storage demand for the data center and artificial intelligence industry. The company has been developing its portfolio and building its operational capacity strategically to be ready to meet the growing demand for its products.
It recently announced its fiscal fourth quarter 2024 results, which indicated that the company has capitalized on both hard drive and cloud storage segments. The overall revenue for the quarter stood at $3.76 billion, up 9% subsequently, whereas its Cloud revenue grew by 21% during the same time. The quarter was marked by a 3% increase in client revenue indicating new wins in the segment. As a result of this robust performance the revenue for the year came in at $13 billion.
Management expects its fiscal first quarter 2025 revenue to be between $4 to $4.2 billion indicating a significant increase from the recent quarter.
Western Digital Corporation (NASDAQ:WDC) is also cheap at current levels and ranks 6th on our list of most undervalued growth stocks to buy according to Wall Street analysts. It is trading at only 8.4 times its forward earnings. Moreover, analysts are expecting its earnings to grow by more than 4000% during the year making it a hard-to-miss investment opportunity for risk-tolerant investors.
Parnassus Mid Cap Fund stated the following regarding Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
4. Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY)
Forward P/E: 11.49
Earnings Growth: 6.10%
Number of Hedge Fund Holders: 25
Analyst Upside Potential: 37.28%
If you are looking for a biotechnology company that is in for some lofty growth in the years to come, you might be interested in Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY). First of all the company is trading at a cheap valuation with analysts expecting its price to jack up by 37.28% during the year.
Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) specializes in developing commercialized therapies for rare neurological diseases. It differentiates based on its focus on developing treatments for neurological diseases where current treatments are inefficient.
Recently, the company got FDA approval for its Pitolisant drug called WAKIX to treat PWS. The drug had already been approved to treat daytime sleepiness in adults with narcolepsy. This recent approval positions the company to meet the demand of more than 20,000 patients in the United States alone.
The recent FDA approvals have already started to show a positive impact on its balance sheet. The fiscal second quarter of 2024 resulted in WAKIX Net Revenue growing 29% year-over-year to $172.8 million. In addition, the number of active patients using the drug also increased by 250 during the quarter.
If we talk about the net income, Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) does not seem to disappoint here as well. Its net income came in at $60.6 million, with management being confident it to meet revenue targets of $700 million to $720 million during 2024.
3. Micron Technology, Inc. (NASDAQ:MU)
Forward P/E: 11.5
Earnings Growth: 587.70%
Number of Hedge Fund Holders: 120
Analyst Upside Potential: 41.81%
When it comes to growth stocks it is hard to miss companies specializing in memory and storage solutions. Micron Technology, Inc. (NASDAQ:MU) is one such company specializing in Dynamic Random-Access Memory (DRAM), NAND Flash Memory, and NOR Flash Memory.
The strategic edge of the company operates from the critical position it plays with its DRAM and NAND. It is one of the few makers of these memory storages which allows software applications on your devices.
The investment case for Micron Technology, Inc. (NASDAQ:MU) stays the same as it is for most storage solution companies. The Cloud and artificial intelligence technologies have led to a sustained demand for high demand for its digital memory. Moreover, on the DRAM side of its business, the company has only a few competitors which is easily overshadowed by the rising demand for memory solutions.
Management sounds optimistic about capitalizing on the growing demand and turning it into revenues and net income. CEO Sanjay Mehrotra says the company is in the best competitive position in the company’s history.
If we look at the fiscal 2024 earnings results the claim of Sanjay does not seem far-fetched. Micron Technology, Inc. (NASDAQ:MU) grew its revenue for the year by 62% year-over-year to reach $25 billion. The revenue growth came in with significant gross margins of 22% which were impressive when compared to last year’s negative 9% margins.
Moving forward the company plans to allocate more than 35% of its fiscal first 2025 revenue to develop its fab construction. Using the capital management will upgrade its Idaho and New York fabs to cater growing demand for its DRAM.
Parnassus Value Equity Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Micron Technology, Inc. (NASDAQ:MU) posted fiscal-third-quarter results that met expectations. Micron’s DRAM (dynamic random access memory) and NAND (non-volatile storage technology) segments grew revenue strongly, continuing the company’s recovery from a cyclical downturn last year. We believe Micron is well positioned to capitalize on AI-driven demand for greater memory.”
2. Super Micro Computer, Inc. (NASDAQ:SMCI)
Forward P/E: 12.32
Earnings Growth: 52.50%
Number of Hedge Fund Holders: 47
Analyst Upside Potential: 54.01%
Super Micro Computer, Inc. (NASDAQ:SMCI) is another technology company that is riding the AI transformation wave. Artificial intelligence has acted as a catalyst to pace up its growth mainly owing to its next-gen X14 Intel Xeon 6, H14 AMD Turin systems, and liquid cooling clusters. These technologies are important components for high-performance servers and storage solutions, which are the backbone of AI and data centers.
If we look at the past 3 years’ performance of Super Micro Computer, Inc. (NASDAQ:SMCI) we see that the company has been able to grow its net income by more than 121%, while growing its revenue by around 61%.
What’s more impressive about the company is its fiscal fourth quarter results. The results showed that the revenue for the year grew more than twice when compared to 2023 and reached $14.9 billion. The company has been landing significant business and design wins which position it for long-term growth. Multi-billionaire and CEO of Tesla, Elon Musk has recently named Super Micro Computer, Inc. (NASDAQ:SMCI) as one of the providers of AI servers for his startup xAI.
The company is also trading at an undervalued price. It is trading at only 12 times its forward earnings, while the S&P market average sits above 24, making it one of the most undervalued growth stocks to buy according to Wall Street analysts.
Carillon Scout Mid Cap Fund stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its Q2 2024 investor letter:
“Super Micro Computer, Inc. (NASDAQ:SMCI) was the top detractor to returns in the second quarter. Super Micro designs and manufacturers server solutions based on modular and open-standard architecture. This modular approach combined with a strong engineering culture helps the company to supply the market with advanced servers and rack-scale compute solutions quickly. After an impressive return in the first quarter, the company offered disappointing near-term earnings guidance, though we do not believe its long-term opportunity has diminished. We expect continued strong growth for several years, although the range of outcomes is quite wide; it is difficult to forecast AI server market growth with precision.”
1. Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Forward P/E: 5.6
Earnings Growth: 7.00%
Number of Hedge Fund Holders: 44
Analyst Upside Potential: 59.99%
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is the most undervalued growth stock to buy according to Wall Street analysts. 19 analysts have a strong Buy rating for the stock with their median price target representing a 60% upside from the current levels.
It is a biopharmaceutical company that focuses on developing treatments for neurological diseases and oncology. While the company already has a portfolio of top-performing medicines in the related fields, it recently got good news from the FDA. The FDA granted priority review for Zanidatamab, which is said to hit the market in around 2 months.
As of now, Xywav, Epidiolex/Epidyolex, and Rylaze/Enrylaze are fueling growth and driving the company’s revenue. The three medicines combined led the total revenue to grow 15% year-over-year during the second quarter of 2024. Moreover, the oncology department of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) was also not behind with a 10% increase during the same time.
The company has an already existing portfolio of more than 9 FDA-approved products curing patients with neurological disorders and in the oncology department. Not only this, it is constantly researching and lining up its pipeline for further approvals making it well-positioned for future growth.
Aristotle Capital Global Equity Strategy made the following comment about Jazz Pharmaceuticals plc (NASDAQ:JAZZ) in its Q3 2023 investor letter:
“During the quarter, we sold our position in Magna International and invested in a new position, Jazz Pharmaceuticals plc (NASDAQ:JAZZ). Founded in 2003, Jazz Pharmaceuticals is a global biopharmaceutical company headquartered in Ireland. The drugmaker’s portfolio of nine approved products focuses on conditions with limited therapeutic treatments in neuroscience (~75% of 2022 revenue) and oncology (~25%).
Jazz’s drug Xyrem was added to its portfolio in 2005 and was approved for use in patients with narcolepsy. The drug’s strong efficacy propelled it to be the standard of care for this incurable sleep condition and has achieved wide adoption for the treatment of excessive daytime sleepiness and cataplexy (episodes of loss of muscle control).
Xyrem’s patent exclusivity ended in January 2023, and authorized generic versions of the product have entered the market. To prepare for the patent cliff, the company developed Xywav, a lower‐sodium version of Xyrem, which is touted for its potentially better heart safety. The drug has received FDA approval for the treatment of narcolepsy and idiopathic hypersomnia and has orphan drug exclusivity through 2027…” (Click here to read the full text)
While we acknowledge the potential of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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