5 Hot Dirt-Cheap Growth Stocks to Buy Now
- (0:45) - Finding Value Stocks With Growth
- (6:15) - Tracey’s Top Stock Picks
- (18:20) - Episode Roundup: MHO, MTH, SAH, STC,
Welcome to Episode #206 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
As we all know, growth has been hot for the last few years.
But what if you could find a growth stock that was growing its revenue by the double digits, but that was also cheap?
A growth stock that is also a value stock.
Does such a unicorn stock exist?
Growth and value is a powerful combination. Surely, the Street would be gobbling up these stocks if they were out there.
How to Screen for Cheap Growth Stocks
It’s not easy to screen for companies that have strong revenue growth in addition to other solid fundamentals.
First, if you’re going to screen for a unicorn, you might as well find one that is also seeing rising earnings estimates. First component of the screen is stocks that are Zacks Rank #1 (Strong Buys).
That will make this a narrow screen as there are only just 229 Zacks Rank #1 (Strong Buy) stocks right now.
Then, to find growth, you can add the Zacks Growth Style Score of A, which is the top score.
You can screen for revenue growth by comparing this year’s and taking the difference with next year.
To keep out the micro caps, add average volume over 100,000 shares.
And finally, to find the “cheap” aspect, screen for companies with a forward P/E under 15.
This screen returned 13 dirt-cheap growth stocks, even with the narrow requirements.
5 Hot Dirt-Cheap Growth Stocks to Buy Now
1. MI Homes, Inc. MHO is a small-cap home builder which is trading with a forward P/E of just 7. Sales are expected to grow 10.5% this year as housing demand exploded higher due to the COVID pandemic and the low mortgage rates. Shares are up 17% year-to-date but earnings are expected to rise 36.7% this year.
2. Meritage Homes MTH is a mid-cap home builder whose shares have soared 70% year-to-date as housing demand has remained strong. Sales are expected to jump 16.4% this year. Yet it remains dirt cheap with a forward P/E of just 11.
3. Sonic Automotive, Inc. SAH is an auto retailer, which sells new and used cars. Auto sales have been hot as people don’t want to take public transit due to the pandemic. Shares are up 33% year-to-date. Earnings are expected to rise 29.4% in 2020. It’s still cheap with a forward P/E of only 12.
4. Stewart Information Services STC is a global title insurance and real estate services company with a market cap of $1.1 billion. In the second quarter, it saw one of the strongest quarters in recent history as refinances and purchase transactions jumped thanks to low mortgage rates. Earnings are expected to rise 48% in 2020 giving it a forward P/E of just 10.6.
5. Sportsman’s Warehouse SPWH is seeing record breaking results thanks to strong firearm sales due to the pandemic and protests, as well as strong outdoor sales on things like camping equipment and fishing, as Americans relax outside. All categories were strong in the fiscal second quarter with same-store-sales up 61% and e-commerce up 300%. Sales are expected to rise 39.7% this year. Shares have soared 72% year-to-date but it’s still dirt cheap with a forward P/E of 9.
What else do you need to know about finding growth stocks that are also cheap?
Listen to this week’s podcast to find out.
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Sonic Automotive, Inc. (SAH): Free Stock Analysis Report
Stewart Information Services Corporation (STC): Free Stock Analysis Report
Meritage Homes Corporation (MTH): Free Stock Analysis Report
MI Homes, Inc. (MHO): Free Stock Analysis Report
Sportsmans Warehouse Holdings, Inc. (SPWH): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.