When it comes to investing styles, growth, and value are the OG’s. The advent of factor investing has added many more to the mix but growth and value remain popular ways for institutions and individuals to evaluate stocks.
Growth can be defined in any number of ways that suit the investor's style. At the core, the chosen metrics seek to encapsulate companies that are growing faster than the broader economy. S&P Global uses sales growth, the earnings-to-price (E/P) ratio, and momentum to distinguish between growth and value.
However, the lines between growth and value can get blurred when the market heads south. The recent underperformance of growth stocks has lowered prices, raised E/P ratios, and lowered P/E ratios for most companies—some to the extent that their growth metrics no longer look so "growthy".
The depressed P/E ratios of these three S&P 500 growth stocks make them value stocks in a growth wrapper—and bargain buys for investors.
Is the Moderna Selloff a Buy Opportunity?
At 5x trailing earnings, Moderna, Inc. (NASDAQ: MRNA) is the third least expensive stock in the S&P 500. Among companies with positive P/E ratios, only eBay and Synchrony Financial are cheaper.
One of last year’s biggest runners, Moderna has come back to Earth since nearly touching $500 in August 2021. This is because positive momentum in the fight against the coronavirus has been perceived as a negative for the vaccine leader.
Global caseloads may be on the decline but the fight is ongoing for Moderna. After releasing favorable data on its latest booster targeting the now dominant Omicron variant, the company hopes to secure approval for fall 2022. It is also seeking expanded approval of its Covid vaccine in Europe and in the U.S. for children under six.
Meanwhile, the order flow for Moderna’s existing approval remains strong and has the Street projecting EPS of $27.94 this year. This implies a FY22 P/E of 6x. Earnings projections drop off from there with order levels uncertain beyond 2023, but given the potential for new variants and global booster demand, those are likely to trend higher. Moderna’s other pipeline candidates for other diseases and cancer, the majority of which are in clinical studies, are further reasons to pounce on the selloff.
Is Goldman Sachs Stock Growth or Value?
Down more than 30% from its November 2021 peak, The Goldman Sachs Group, Inc. (NYSE: GS) has a 6x trailing P/E that is roughly half that of the capital markets industry average. Like a lot of U.S. companies, 2022 is expected to be a down year for earnings before earnings growth resumes in 2023. With better profitability ahead, the current low valuation presents an attractive entry point.
Goldman’s core investment banking business is seeing less activity this year with geopolitical headwinds and recession worries putting would-be customers in risk-off mode. Coming off record profits in 2021, lower investment management and trading revenues are also poised to contribute to a down year.
Yet Goldman has been through plenty of economic and profit cycles to know that things will eventually turn around. Risk-asset values and investment banking activity are likely to recover if the Fed can navigate a soft landing. Whether it’s a few months away or several months away, lower inflation and improved supply chain pressures should lead to renewed interest in the company’s financial offerings.
Until then, Goldman will be moving forward with new growth initiatives around digital consumer banking and transaction banking which are expected to complement growth in core businesses. Management anticipates that digital banking alone is a $125 billion opportunity through 2025.
In addition to the low P/E, Goldman has a 2.7% forward dividend yield that makes it a compelling growth-value hybrid to buy and hold for at least the next few years.
Is Diamondback Energy Stock Undervalued?
Diamondback Energy, Inc. (NASDAQ: FANG) has had a great run over the last 18 months, climbing to a record high above $160 last month. The sharp downturn and resulting value price tag presents a nice entry point.
At 9x earnings, Diamondback is one of the cheapest ways to gain exposure to the large-cap oil space. The company owns some of the most lucrative acreage in the Permian Basin in addition to attractive oil and gas interests in Rattler Midstream Partners and Viper Energy Partners that generate steady revenue.
Diamondback scores high on the growth scale because earnings have risen sharply from pandemic lows and there is a ton of momentum in the stock dating back to late 2020. Worries about lower crude demand in a recession have pushed oil prices back below $100, but given the recent volatility in energy markets and ongoing Russia-Ukraine war, drillers are likely to keep pumping oil in anticipation of a persistent global need for fuel.
Sell-side research doesn’t always get the hard-to-predict oil stocks right, but it's hard to argue with the Street’s unanimously bullish stance on Diamondback. As crude prices have faltered over the last couple of weeks, analysts have repeatedly called the stock a buy. On Tuesday, RBC Capital returned from the 4th of July holiday energized about Diamondback with a raised $184 price target.
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