15 cheap stocks growing fast enough to avoid the value trap

The recent market sell-off has swelled the ranks of S&P 500 stocks in the value category. Here are 15 names to consider.

  • By Nicholas Jasinski,
  • Barron's
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Growth investing has left value in the dust for the past decade, and its dominance has only been extended during the coronavirus crisis. The record bull market had been led by megacap growth names like Microsoft (MSFT), Amazon.com (AMZN), and Apple (AAPL) — the same technology-heavy group of stocks that has held up best during 2020’s turmoil.

Old-economy value stocks, meanwhile, have seen the pressure heaped on by widespread stay-at-home orders. Additionally, current rock-bottom interest rates have made companies’ future earnings worth more when discounted back to the present. That’s further favored growth stocks that expect the bulk of their profits to come several years down the road.

While it has increased concentration in the top few names, the market’s steep tumble and uneven rebound in 2020 has swelled the ranks of firms that can be classified as value stocks —traditionally those that trade at a discount to the market on various fundamental measures. Growth stocks, meanwhile, are those that can be expected to increase their earnings or revenues at a faster rate than the rest of the market.

Over the past five years, the S&P 500’s (.SPX) overall earnings per share grew at a 6.6% compound annual rate. Before anyone had ever heard of coronavirus, analysts expected S&P 500 companies to grow their combined earnings per share by about 8% in 2020. The consensus forecast is now for a 22% drop from 2019. But with the index now down just 8.5% year to date, its valuation multiple has expanded: The S&P 500 currently trades for about 21 times estimated earnings over the next 12 months.

Barron’s screened for stocks in the S&P 500 that exhibit characteristics of value stocks—namely, they still look cheap—but that have the growth attributes of faster-than average forecasted profit gains.

There are 191 companies in the index that trade for less than 15 times forward earnings estimates. Of those, 83 have grown their earnings per share by at least 10% annually over the past five years. And just 15 are expected to match that growth rate over the next half-decade.

The stocks produced by the screen are in the table below.

Company Ticker Sector Forward P/E Past 5-Year EPS Growth Rate Next 5-Year Estimated EPS Growth Rate
AbbVie ABBV Health Care 7.9 36.8% 11.5%
Albemarle ALB Materials 14.9 14.4% 15.0%
Alexion Pharmaceuticals ALXN Health Care 8.7 26.8% 12.6%
Applied Materials AMAT Technology 12.6 26.7% 19.6%
Ameriprise Financial AMP Financials 7.7 10.9% 11.6%
Anthem ANTM Health Care 11.0 15.6% 14.3%
Broadcom AVGO Technology 11.7 41.0% 12.4%
Bristol-Myers Squibb BMY Health Care 8.2 10.9% 17.9%
CBRE Group CBRE Real Estate 11.7 21.0% 11.0%
Cigna CI Health Care 9.3 11.4% 12.6%
Centene CNC Health Care 11.3 23.1% 13.6%
Cabot Oil & Gas COG Energy 12.5 45.5% 25.7%
Fifth Third Bancorp FITB Financials 8.1 14.9% 10.2%
Lam Research LRCX Technology 14.7 30.5% 13.8%
Universal Health Services UHS Health Care 10.1 11.0% 11.7%

Source: FactSet



Companies with a proven growth record and bullish analyst outlooks—but available at value prices—include Anthem (ANTM), Applied Materials (AMAT), Broadcom (AVGO), Bristol-Myers Squibb (BMY), and Cabot Oil & Gas (COG).

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