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Cheap stocks set for strong growth. Matthias Kulka/Getty Images This story is available exclusively to Insider subscribers. Become an Insider and start reading now. So far, 2022 has been bad for growth stocks as investors flee to safety and value. If the economy begins to improve, these stocks could see a strong comeback. JPMorgan compiled a list of stocks with the best value relative to their growth potential. The Federal Reserve’s fight to tame inflation and normalize the monetary policies it introduced at the pandemic’s start have sent investors fleeing from growth stocks into value stocks and even cash.
Year-to-date, the S&P 500 is down by about 18%, with growth stocks continuing to significantly underperform as the market looks for its bottom. An index of the fastest-growing S&P 500 companies was down by 18% as of Friday, while its value counterpart was down 6%.
Growth stocks outperformed for much of the past decade, when the Fed kept borrowing costs cheap to stimulate the economy. But now, following the Fed’s shift, several of these high-growth stocks that have sold off are still extremely cheap relative to their potential, according to a September 1 note from JPMorgan.
“This correction has pushed some growth stocks to extreme dislocations,” said a team of strategists led by Dubravko Lakos-Bujas. As an example, they noted that the fastest-growing stocks are trading at a record 9x price-to-earnings discount relative to the rest of the S&P 500.
If the tides turn and economic growth improves or the central bank stabilizes or reduces its interest rate hikes, the firm says investors should consider these stocks as part of a balanced portfolio.
Below is a list of 29 stocks from the S&P 500 that JPMorgan says are cheap but have strong growth potential. The so-called growth score is a combination of one-year and three-year growth in sales and free cash flow. The value score is a combination of the price-to-earnings ratio, price-to-sales ratio, and the firm’s market capitalization to its book value.
The stocks are ranked starting with the highest average growth-at-reasonable-price rating (GARP).
2. Lincoln National Corporation
Markets Insider Ticker: LNC
Sector: Financials
Score: 3.0
4. Western Digital Corp
Markets Insider Ticker: WDC
Sector: Technology
Score: 2.7
5. Alaska Air Group
Markets Insider Ticker: ALK
Sector: Industrials
Score: 2.6
7. Micron Technology Inc.
Markets Insider Ticker: MU
Sector: Technology
Score: 2.4
8. Advanced Micro Devices, Inc.
Markets Insider Ticker: AMD
Sector: Technology
Score: 2.3
9. Hewlett Packard Enterprise Company
Markets Insider Ticker: HPE
Sector: Technology
Score: 2.3
11. DXC Technology Co
Markets Insider Ticker: DXC
Sector: Technology
Score: 2.3
12. FedEx Corporation
Markets Insider Ticker: FDX
Sector: Industrials
Score: 2.3
14. Delta Air Lines, Inc.
Markets Insider Ticker: DAL
Sector: Industrials
Score: 2.1
15. Weyerhaeuser Co
Markets Insider Ticker: WY
Sector: Real Estate
Score: 2.1
16. CBRE Group Inc.
Markets Insider Ticker: CBRE
Sector: Real Estate
Score: 2.1
17. Lennar Corporation
Markets Insider Ticker: LEN
Sector: Discretionary
Score: 2.1
18. Centene Corporation
Markets Insider Ticker: CNC
Sector: Health Care
Score: 2.1
19. Expeditors International of Washington Inc.
Markets Insider Ticker: EXPD
Sector: Industrials
Score: 2.0
20. MGM Resorts International
Markets Insider Ticker: MGM
Sector: Discretionary
Score: 2.0
21. Nucor Corporation
Markets Insider Ticker: NUE
Sector: Materials
Score: 2.0
22. PulteGroup, Inc.
Markets Insider Ticker: PHM
Sector: Discretionary
Score: 1.9
23. United Airlines Holdings Inc
Markets Insider Ticker: UAL
Sector: Industrials
Score: 1.9
24. LyondellBasell Industries N.V.
Markets Insider Ticker: LYB
Sector: Materials
Score: 1.9
25. Franklin Resources, Inc.
Markets Insider Ticker: BEN
Sector: Financials
Score: 1.9
27. Regeneron Pharmaceuticals, Inc
Markets Insider Ticker: REGN
Sector: Health Care
Score: 1.8
28. Edison International
Markets Insider Ticker: EIX
Sector: Utilities
Score: 1.8
29. Live Nation Entertainment, Inc.
Markets Insider Ticker: LYV
Sector: Comm. Services
Score: 1.7
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