Sometimes, earnings grow faster than stock prices. And other times, growth stocks go on sale even though revenue is still climbing. In both cases, P/E ratios can fall to levels that make growth stocks look more like value stocks. When that happens, buying shares can lead to market-beating returns, so we asked these three Motley Fool investors if there are any growth stocks on their radar that are value-priced. They responded by recommending these stocks. Are these growth-stock bargains worth adding to your portfoio?
Top Insurance Stocks To Buy For 2019: Moody's Corporation(MCO)
When a government or company wants to float a bond or two their first step is to get it rated. The reason is that bond buyers demand an independent assessment of how likely the bond is to be repaid, which is kind of an important thing for them to figure out ahead of time. Furthermore, these bond buyers usually won’t trust a rating from just anybody; instead, they give preferential treatment to ratings that are made by one of the "big three" rating agencies (Fitch, S&P Global, or Moody’s). A rating from one of the big boys can go a long way to give bond buyer’s confidence that the bond will be repaid in full once it matures. That confidence increases their willingness to accept a lower interest, which can save the issuer millions of dollars in interest payments.
With so much power concentrated in the hands of the "big three," these companies have turned into highly lucrative businesses. Take Moody’s as an example. This stock boasts extremely high returns on capital and cranks out more than $1 billion in free cash flow each year. Management has a long history of using that excess cash to buy back stock, make tuck-in acquisitions, and boost its dividend payment (its most recent dividend hike came in at 16%). Perhaps it’s no wonder why this stock has been in Buffett’s portfolio for years.
When factoring in volume growth, price increases, acquisitions, and stock buybacks, Wall Street currently estimates that Moody’s profits will grow by more than 16% annually over the next five years. That’s quite fast for a business that is trading for less than 20 times forward earnings and sports a dividend yield of about 1%. Adding in the fact that it comes with Buffett’s seal of approval makes it all the more enticing.
Top Insurance Stocks To Buy For 2019: Plains All American Pipeline L.P.(PAA)
After steadily growing for several years, Plains All American Pipeline’s earnings peaked in 2013 and have steadily declined ever since. While EBITDA only slid from $2.3 billion in 2013 to $2.1 billion last year, distributable cash flow dropped from about $1.7 billion ($2.56 per share) to $1.3 billion ($1.82 per share). That decline in cash flow made it impossible for the company to maintain its overly generous cash distribution rate to investors, ultimately forcing the company to slash the payout in 2016. Plains would go on to cut it again last year, this time to free up cash to pay off debt — which had grown to an uncomfortable level of 5 times EBITDA — and finance expansion projects.
Plains All American Pipeline’s turnaround strategy is already starting to deliver results. The company had reduced debt $1.5 billion by the end of last year and expects to hit its leverage target of 3.5 to 4 times debt to EBITDA in early 2019. The company has also invested heavily in building assets supported by fee-based contracts that should provide it with steadier cash flow in the future. As a result, Plains sees earnings rebounding back up to $2.3 billion this year while cash flow should improve to $1.5 billion ($2.03 per share), which is enough to cover its reset distribution by a comfortable 1.7 times.
Meanwhile, the company has more growth coming down the pipeline via the nearly $2 billion of expansion projects it has underway that should enter service over the next two years. The uplift from those projects, when combined with the company’s improving balance sheet, positions Plains to start increasing its 4.9%-yielding distribution next year. This combination of an improving financial profile and a return to growth has the potential to fuel substantial total returns for investors in the coming years, especially as the oil market keeps improving.
Top Insurance Stocks To Buy For 2019: Applied Materials, Inc.(AMAT)
Applied Materials is one of the world’s largest suppliers of fabrication equipment to semiconductor, LCD, and solar PV cell manufacturers. When the semiconductor business is booming, Applied benefits as its clients demand new equipment and services.
On top of its #1 (Strong Buy) designation, AMAT is also presenting some interesting valuation metrics. The stock is trading at just over 12.5x forward earnings, and with its PEG ratio of 0.9, investors can see that they are getting a great price for its earnings growth potential.
Applied is scheduled to release its latest quarterly earnings results later this week. Based on our latest Zacks Consensus Estimates, analysts expect the firm to see adjusted earnings growth of 43% and total revenue growth of 26%. Also, our Most Accurate Estimate for earnings—which only accounts for the most recent analyst projections—sits higher than the consensus, indicating that sentiment has warmed recently.
Top Insurance Stocks To Buy For 2019: Helios and Matheson Analytics Inc(HMNY)
Information technology company Helios and Matheson Analytics Inc (NASDAQ:HMNY) got famous in late 2017 because the company acquired a majority stake in MoviePass.
For those who are unfamiliar, MoviePass is a subscription business that allows consumers to pay a set monthly fee to go to the movies essentially as much as they want (you get one 2D movie per day). It’s like Netflix, Inc. (NASDAQ:NFLX) for movie theaters.
The idea was supposed to disrupt and revolutionize the movie industry. That is why HMNY stock took off from $2 and change to over $30 in a matter of weeks after the company acquired a majority stake in MoviePass.
There was just one small problem. The money. MoviePass was priced at $9.95 per month, while the average movie admissions ticket is higher than that. Thus, MoviePass essentially loses money if a subscriber goes to the movies just once per month.
Everyone thought that MoviePass would gain a huge user base, much like Netflix, and proceed to use that user base as leverage to negotiate movie admissions tickets down to a point where MoviePass would become profitable. But that hasn’t happened, and HMNY has consequently dropped like a rock.
Throwing in the towel now, though, seems a little premature. These things take time. MoviePass already has 2 million subscribers, and expects to rack up 5 million subs by the end of 2019. At that rate of growth, HMNY will soon amass a user base large enough to do exactly what it set out to do: negotiate ticket prices down.
If that ever happens, MoviePass will become a legitimate business with huge profits, and HMNY stock will fly higher.