We recently compiled a list of the 12 High Growth Low PE Stocks to Buy. In this article, we are going to take a look at where Northern Oil and Gas Inc. (NYSE:NOG) stands against the other high growth low PE stocks.
Amid the artificial intelligence frenzy, stock valuations have been overlooked. Over the past two years, investors have shunned value-oriented names in favor of high-flying technology names. That has left investment portfolios susceptible to heightened volatility should there be a deep correction as investors react to premium valuations.
While the dust appears to have settled in the aftermath of the massive pullback following the revelation that DeepSeek might be way ahead of most American AI models, Niles, founder and portfolio manager at Niles Investment Management, believes investors should be highly cautious. “I think investors should be cautious about assuming that this is the bottom,” Niles told CNBC’s Sri Jegarath and Chery Kang on Squawkbox Asia.
It’s no secret that most stocks are trading at premium valuations in response to the AI-driven rally. Consequently, the focus is increasingly on high-growth stocks trading at discounted valuations characterized by low price-to-earnings multiple. Likewise, some of the best stocks in this category are backed by solid underlying fundamentals such as robust revenue growth.
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High-growth stocks are mostly companies well-positioned to grow their profits more quickly than the typical companies in their industry. However, growth investing is more than just choosing stocks. The focus should always be on companies that have frequently created novel products or services that are expanding their market share, breaking into new markets, or even starting whole new industries.
Similarly, companies that can grow faster than average for extended periods of time and provide shareholders with sizable returns are typically rewarded by the market. Additionally, the potential returns increase with their rate of growth.
Growth stocks are impacted by high inflation because it lowers the projected future value of their earnings. Supply chain limitations, also impact some company’s capacity to grow and other macroeconomic factors slow down the economy as a whole. However, when growth stock prices are low, downturns can present a buying opportunity for long-term investors.
While the focus for the longest time has been on tech giants benefiting from the AI trade, Tom Lee, head of research at Fundstrat Global Advisors, believes investors should consider diversifying their portfolios. Given that valuations in the tech industry appear overblown, financials offer a way out at highly discounted valuations backed by solid underlying fundamentals.
“I think financials to me represent a pretty good fundamental case of change this year because we have a new administration, a Fed that is dovish, yields that aren’t painful for banks — and a time when it could lead to upside for capital markets activity, and multiples are low,” Lee said
Even as investors debate whether the DeepSeek correction amounted to an overreaction focusing on high growth, low PE stocks appear to be a promising play given the heightened volatility in the market.
Our Methodology
To make the list of 12 high growth low PE stocks to buy, we scanned US stock markets using finviz, focusing on high growth stocks with robust revenue growth metrics (more than 25%). We then settled on the 12 stocks that appear undervalued owing to a low price-to-earnings multiple of less than 15 (as of January 29). Finally, we ranked the stocks in ascending order based on hedge funds stakes in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. 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).
An aerial view of an oil and gas platform in the middle of the ocean, representing the massive resources harvested by the company.
Northern Oil and Gas Inc. (NYSE:NOG)
5-Year Revenue CAGR: 30.06%
Number of Hedge Fund Holders: 26
Forward P/E as of January 29: 8.47
Northern Oil and Gas Inc. (NYSE:NOG) is an independent energy company that engages in the acquisition, exploration, exploitation, development, and production of crude oil and natural gas properties. The company’s competitive edge as one of the best high growth low PE stocks to buy stems from its unique business model. Unlike other oil and gas companies, it acquires minority stakes in leading operators’ premium oil and gas assets.
In return, Northern Oil and Gas Inc. (NYSE:NOG) leaves operations to other companies, avoiding excessive operational costs. Similarly, the company generates significant returns given the low operating costs. Over the past year, the company has focused on deploying capital to high-potential drilling assets, allowing it to enjoy a 30% compound annual growth rate on revenues.
Northern Oil and Gas Inc. (NYSE:NOG) has acquired nearly $5 billion worth of land and currently owns about 300,000 acres. It has also achieved industry-leading operational efficiency in spite of its substantial portfolio. Last year, it strengthened its portfolio of oil and gas-generating assets with the acquisition of XCL Resources for $519 million in partnership with SM Energy Company. Northern Oil and Gas’s strategic partnership aims to enhance its natural gas exposure and operational footprint in a key energy-producing region. Cash flow from operations was up by 9% in the third quarter of last year to $385.8 million. The company generated a record $177.1 million of free cash flow, allowing it to reward shareholders with a 4.43% dividend yield.
Overall NOG ranks 10th on our list of the high growth low PE stocks to buy. As we acknowledge the growth potential of NOG as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.