Traders and investors are digesting what a 50-basis point (0.50%) cut in interest rates means for stocks. If you're a long-term investor, you're not concerned with the day-to-day price movement in stocks. This is particularly true if you own best-in-class stocks. But if you're actively trading the market, volatility brings opportunity.
The market's initial reaction to the rate cut suggests there will be lots of volatility ahead. And that means it's a good time to look at undervalued growth stocks. For much of 2024, investors have been selective about buying risk-on assets. This has concentrated the biggest gains in a handful of stocks.
But even before the rate cut, observant investors saw a shift away from technology and into other sectors. Expect that sector rotation to continue and MarketBeat is here to help you find these opportunities. In this special presentation, we highlight seven undervalued growth stocks that traders and investors may want to consider as a reversal in equities may be underway.
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- Generac Holdings
- Teekay Tankers
- Exxon Mobil
- Medtronic
- Lululemon Athletica
- Arcadium Lithium
- CNH Industrial
#1 - Generac Holdings (NYSE:GNRC)
By many conventional metrics, Generac Holdings Inc. (NYSE: GNRC) doesn’t look undervalued. The company’s forward P/E ratio of 21x is approximately in line with the average of the S&P 500 and the stock is up more than 30% in the last 12 months.
However, the stock is down about 7.7% in the last month after hitting a level of resistance around the $156 level. That makes it oversold at the very least. But is there a bullish case to buy GNRC stock at this level.
First, consider that the company’s revenue and earnings have held up well year-over-year despite rising interest rates. With interest rates heading lower, consumers may be more willing to take on a big-ticket item such as a home generator.
That’s likely part of the thinking of the analysts. The Generac analyst forecasts on MarketBeat have a consensus price target of $154.71 for GNRC. That’s only a gain of about 7%. But since the company’s last earnings report on July 31, eight analysts have raised their price targets with two giving the stock a $200 price target.
About Generac
Generac Holdings Inc designs, manufactures, and distributes various energy technology products and solution worldwide. The company offers residential automatic standby generators, automatic transfer switch, air-cooled engine residential standby generators, and liquid-cooled engine generators; Mobile Link, a remote monitoring system for home standby generators; residential storage solution, which consists of a system of batteries, an inverter, photovoltaic optimizers, power electronic controls, and other components; smart home solutions, such as smart thermostats and a suite of home monitoring products.
Read More - Current Price
- $142.91
- Consensus Rating
- Hold
- Ratings Breakdown
- 11 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $154.71 (8.3% Upside)
#2 - Teekay Tankers (NYSE:TNK)
Teekay Tankers Ltd. (NYSE: TNK) is a name that may not be familiar to many investors, but it’s a stock worth watching. The company is one of the world’s leading marine energy transportation companies with a focus on crude oil.
Despite geopolitical concerns, demand for oil remains strong, and the company is predicting multiple years of strength in the tanker market. Supporting this premise, as well as oil prices is the announcement from the OPEC nations that they will begin unwinding their production cuts beginning in October 2024. This gives the company a firm floor for revenue and earnings.
Furthermore, TNK stock has been one of the best-performing stocks over the past five years posting a total return of 512% in that time. The small-cap stock is not heavily covered by analysts, but the three analysts that have issued a price target have a consensus target of $76.67 which is 34.6% higher than the stock’s price on September 19, 2024.
About Teekay Tankers
Teekay Tankers Ltd. provides crude oil and other marine transportation services to oil industries in Bermuda and internationally. The company offers voyage and time charter services; offshore ship-to-ship transfer services of commodities primarily crude oil and refined oil products; and tanker commercial and technical management services.
Read More - Current Price
- $57.10
- Consensus Rating
- Buy
- Ratings Breakdown
- 3 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $76.67 (34.3% Upside)
#3 - Exxon Mobil (NYSE:XOM)
Exxon Mobil Corp. (NYSE: XOM) is a more direct way to invest in undervalued growth stocks. Oil stocks have underperformed expectations in 2024 as the price of oil dipped under $70 a barrel in September. But lower interest rates are more likely than not to cause oil prices to rise.
Which is why it could be a good time to start, or add to, a position in XOM stock. The stock is up 14.5% in 2024, but most of those gains came in the first quarter of the calendar year. However, since then, the stock has been rangebound.
In its last earnings report, Exxon Mobil beat on the top and bottom lines and both numbers were higher year-over-year. Since that report, UBS Group lowered its price target on XOM stock to $149 price target. However, that price is more than 10% above consensus and investors get a dividend with a 3.25% yield.
About Exxon Mobil
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas in the United States and internationally. It operates through Upstream, Energy Products, Chemical Products, and Specialty Products segments. The Upstream segment explores for and produces crude oil and natural gas.
Read More - Current Price
- $116.02
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $135.76 (17.0% Upside)
#4 - Medtronic (NYSE:MDT)
Healthcare is another sector for growth-oriented investors to watch. Medtronic PLC (NYSE: MDT) is the only pure-play medical device company with a product portfolio filled with life-saving devices such as implantable defibrillators, glucose monitoring systems, and surgical tools. In fact, it has 50% market share in its core heart devices.
The company beat on its top and bottom lines when it reported earnings and both numbers were higher YOY despite tougher comparisons. It also raised its full-year guidance. Investors also get a dividend that has a yield of 3.13%.
That doesn’t seem to excite analysts much. They have a consensus Hold on MDT stock with a price target that suggests future earnings growth is priced into the stock.
In fairness, it is trading near the top of its 52-week range. However, the stock trades at a forward P/E of around 16x earnings, That’s significantly lower than the sector average. And the company should get a tailwind from an aging population combined with the growing demand for acute care.
About Medtronic
Medtronic plc develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide. Its Cardiovascular Portfolio segment offers implantable cardiac pacemakers, cardioverter defibrillators, and cardiac resynchronization therapy devices; cardiac ablation products; insertable cardiac monitor systems; TYRX products; and remote monitoring and patient-centered software.
Read More - Current Price
- $89.47
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $92.92 (3.9% Upside)
#5 - Lululemon Athletica (NASDAQ:LULU)
Lululemon Athletica Inc. (NASDAQ: LULU) has been one of the worst-performing stocks in 2024. As of this writing, the stock is down over 46% for the year. That’s pushed its loss for the last 12 months to over 28%.
In some ways, that was to be expected. The company’s line of athleisure wear is iconic, but also at an uncomfortable price for many consumers who are getting pinched by inflation. What may be more concerning is that some consumers and analysts are citing a lack of innovation as a reason for fading LULU stock.
But this is an example where growth investors should pay more attention to what investors do more than what they say. Even with lower price targets, the consensus price target for LULU stock is $354.94, which is 31% higher than its price as of this writing. It's also fair to note that while Lululemon missed slightly on analysts' forecasts for revenue in its most recent quarter, the number was still higher YOY.
About Lululemon Athletica
Lululemon Athletica Inc, together with its subsidiaries, designs, distributes, and retails athletic apparel, footwear, and accessories under the lululemon brand for women and men. It offers pants, shorts, tops, and jackets for healthy lifestyle, such as yoga, running, training, and other activities. It also provides fitness-inspired accessories.
Read More - Current Price
- $270.76
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 21 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $354.94 (31.1% Upside)
#6 - Arcadium Lithium (NYSE:ALTM)
One story that resonates with investors in 2024 is the slump in the lithium market. Heading into 2024, the price of lithium was at all-time highs. Lithium is a key component of lithium-ion batteries that are used in electric vehicles (EVs) and smartphones. But the price of lithium has fallen sharply to coincide with the lack of demand for EVs.
That slump was acutely seen in the performance of mining stocks such as that of Arcadium Lithium plc (NYSE: ALTM). The company, which was formed by the merger of Livent and Allkem, has only been publicly trading since the beginning of 2024. And the stock is down 45% in that short time.
However, demand for lithium is expected to remain strong as the EV market appears to be showing signs of a tepid recovery. And that could be reflected in Arcadium’s revenue which is higher year-over-year in the first two quarters of 2024. The company is still profitable, but earnings are lower.
That could account for the 20% increase in short interest in the 30 days ending September 19, 2024. But it also could set up short covering if the ALTM share price makes a sharp move higher.
About Arcadium Lithium
Arcadium Lithium plc engages in the production of lithium chemicals products in the Asia Pacific, North America, Europe, the Middle East, Africa, and Latin America. It offers battery-grade lithium hydroxide, lithium carbonate, butyllithium and high purity lithium metal for electric vehicles, electronics, agricultural, industrial, greases, polymers, pharmaceutical, battery, and aerospace applications.
Read More - Current Price
- $2.50
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $11.00 (340.0% Upside)
#7 - CNH Industrial (NYSE:CNH)
CNH Industrial Inc. (NYSE: CNH) is a company in the Industrial Products sector that is based in the United Kingdom. Specifically, the company is known for its heavy equipment used in agricultural applications. This sector is particularly sensitive to interest rates. That dynamic has played out in 2023 and 2024 as the sector has been ravaged by a drop in net farm income due to lower commodity prices and higher production expenses.
Rate cuts will take time to help, but the market is always forward-looking, and that’s why you should consider CNH stock. There are bigger names in the sector, but with a $13 billion market cap and a forward P/E ratio of 7.8x, CNH Industrial is likely to attract some attention.
Investors can grab shares at a price of around $10 per share as of this writing. The CNH Industrial analyst forecasts on MarketBeat have a $14.06 consensus price target which is 32.9% higher than its closing price on September 19, 2024.
About CNH GLOBAL N V Foreign
CNH Global N.V. (CNH) is a global, full-line company in both the agricultural and construction equipment industries. The Company organizes its operations into three business segments: agricultural equipment, construction equipment and financial services. The Company markets its products globally through its two brand families, Case and New Holland.
Read More - Current Price
- $10.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $14.06 (28.4% Upside)
An important caveat to investing in growth stocks immediately after the Fed's decision is that we are in an election year. To be clear, investors will figure out a path to profits no matter who wins, but the policies and the subsequent tactics couldn't be more different. It's that uncertainty that is likely to bring volatility.
Therefore, prior to the election, investors are likely to continue buying stocks in sectors like consumer staples, utilities and healthcare that are defensive in nature. However, it's no surprise that the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY) jumped 2% the morning after the Fed announcement. Stocks in this sector stand to do very well if consumers beging to feel more secure in their purchasing power.
The takeaway for investors is that while this is not a moment for the faint of heart, you have to be in the market to enjoy the biggest gains. The seven stocks in this presentation are good ideas as you start to generate a watch list.
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