There are still a few value plays left for the taking.
Interest rates have been at historically low levels for most of the past decade, and growth stocks have led the stock market charge to all-time highs. Unfortunately, many analysts and investors believe the valuations of some of the highest-flying growth stocks have become stretched at this point, limiting additional upside in the near term. Some investors are even concerned that the market may be experiencing a growth stock bubble. Fortunately for growth investors, there is still a handful of value plays among growth stocks in 2021. Here are nine undervalued growth stocks that analysts recommend.
Advance Auto Parts (ticker: AAP)
Bank of America analyst Elizabeth Suzuki says do-it-yourself auto parts spending trends are still strong in early 2021, and the next round of government stimulus payments could be a significant tailwind. She says Advance Auto Parts' relatively high exposure to professional auto services will help insulate the company from difficult year-over-year, do-it-yourself comparisons in April and beyond. While the do-it-yourself business plateaus, Suzuki says Advance's professional business should rebound as more drivers start to return to the road in the first half of 2021. Bank of America has a "buy" rating and a $185 price target for AAP stock.
Cigna is one of the largest U.S. managed care organizations and pharmacy benefit managers. Morningstar analyst Julie Utterback says Cigna is a compelling value priced at just 10.4 times forward earnings and 0.5 times sales. Cigna reported 9.1% revenue growth and 323% net income growth last quarter. Utterbeck says Cigna has an opportunity to cross-sell its pharmacy benefit manager services to its managed care clients and vice versa. Also, she says the company's Accredo specialty pharmacy is a potential growth catalyst. Morningstar has a "buy" rating and a $238 fair value estimate for CI stock.
Amazon has been one of the best-performing growth stocks of all time, but Bank of America analyst Justin Post says the stock is still undervalued. Post says investors should anticipate a deceleration in growth this year as Amazon laps the beginning of the health crisis. However, he says Amazon's results in recent quarters demonstrated just how powerful and profitable its online retail, cloud services and advertising businesses can be in the long term. Post says Amazon Web Services revenue growth could get a boost from a rebound in IT spending. Bank of America has a "buy" rating and a $4,150 price target for AMZN stock.
DexCom is a medical device company that produces glucose monitoring systems for people with diabetes. Bank of America analyst Bob Hopkins says DexCom is a leader in one of the largest and most defensible markets in the medical technology space. The company reported 23% revenue growth and 283% net income growth in the fourth quarter but has said it plans to ramp up its investments in 2021. Those investments may weigh on margins in the near term, but Hopkins says they should pay off for growth investors in the long term. Bank of America has a "buy" rating and a $500 price target for DXCM stock.
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals develops therapeutics for treating cystic fibrosis, inflammation and other conditions. Morningstar analyst Karen Andersen says Vertex will maintain its dominant position in the cystic fibrosis market and rely largely on other pipeline drug candidates to drive its long-term growth. That promising pipeline includes candidates such as CTX001 for beta-thalassemia and sickle-cell disease, VX-864 for alpha-1 antitrypsin deficiency and VX-147 for APOL1-mediated kidney disease. Vertex reported 15% revenue growth in the most recent quarter, yet its stock trades at just 16.5 times forward earnings. Morningstar has a "buy" rating and a $259 fair value estimate for VRTX stock.
Quarter after quarter, social media giant Facebook continues to put up impressive growth numbers, including 33% revenue growth and 53% net income growth in the most recent quarter. Yet despite its staggering growth, Facebook shares are still attractively valued at just 19.7 times forward earnings and 8.6 times sales. Post says shopping is the most important product initiative for Facebook in 2021. In February, Shopify (SHOP) announced it is expanding its "shop pay" payment option to all Facebook and Instagram users. Bank of America has a "buy" rating and a $358 price target for FB stock.
Like Facebook, Google parent Alphabet continues to put up consistent growth numbers, including 23% revenue growth and 43% net income growth in the most recent quarter. Fortunately, it's still attractively valued as well, priced at just 25 times forward earnings and 7.3 times sales. Post says Alphabet has a number of bullish catalysts in 2021, including accelerating search growth, Google Cloud customer wins, YouTube shopping opportunities and progress from Waymo, Calico and YouTube. Post says long-term investors shouldn't sweat regulatory crackdowns. Bank of America has a "buy" rating and a $2,440 price target for GOOGL stock.
Centene is a health plan provider specializing in Medicaid, military and Affordable Care Act marketplace plans. Centene reported 50% revenue growth in the most recent quarter, but the stock trades at just 10.5 times forward earnings and 0.3 times sales. In addition to the company's solid organic revenue growth, Centene also made a $17 billion acquisition of WellCare in 2020. Utterbeck is bullish on the WellCare deal because Medicare Advantage is one of the most attractive growth opportunities in the entire health insurance space. Morningstar has a "buy" rating and an $85 fair value estimate for CNC stock.
Marathon Petroleum (MPC)
The oil industry hasn't provided many growth stocks in recent years. However, Bank of America analyst Doug Leggate projects 34% revenue growth and 34.5% growth in earnings before interest, taxes depreciation and amortization for refiner Marathon Petroleum in 2021. Marathon shares trade at 21 times forward earnings and 0.5 times sales. Leggate says Marathon trades at a deep discount to the value of the sum of its parts. The company's Speedway sale will also provide opportunity for a large share buyback. Bank of America has a "buy" rating and a $70 price target for MPC stock.
Nine growth stocks that are undervalued:
-- Advance Auto Parts (AAP)
-- Cigna (CI)
-- Amazon (AMZN)
-- DexCom (DXCM)
-- Vertex Pharmaceuticals (VRTX)
-- Facebook (FB)
-- Centene (CNC)
-- Marathon Petroleum (MPC)