In my experience, stocks that display both growth and value characteristics are often promising stocks to hold.
Should you buy these stocks now, when a bear market has been raging? In my opinion, yes. We may not have hit bottom, but I feel that these securities are attractively priced.
To qualify as a value stock in my analysis, a stock must sell for 15 times per-share earnings or less. As for growth, it must have increased per-share earnings by an average of 12% or better in the past five years.
Among the few dozen companies that can meet these criteria, here are four I recommend.
Even at age 91, Warren Buffett, the chairman of Berkshire Hathaway, continues to impress me with his wisdom, decisiveness and grasp of nuance.
Berkshire is a sprawling conglomerate. It owns some 70 companies outright, including Burlington Northern Santa Fe Railway, Clayton Homes, Duracell, Fruit of the Loom, GEICO, PacifiCorp and Precision Castparts.
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Berkshire qualified easily for today’s list. Its five-year earnings growth rate was about 33%. The stock sells for only about eight times earnings.
I think the low multiple reflects investors’ fear that Buffett is only mortal; he must die or retire someday. But I believe that he has able lieutenants (notably Greg Abel, Ajit Jain, Todd Combs and Ted Weschler) to succeed him when he dies or retires.
A major supplier of equipment to the semiconductor industry, Applied Materials is based in Santa Clara, California. Its five-year earnings growth rate is above 17%, and the stock sells for under 14 times earnings.
Like almost every technology stock, Applied Materials have been smacked down in the great tech-stock correction of 2022. It’s down 36%, and now sells for about $102 a share.
I don’t know if the tech-stock debacle is over, but I know that Applied Materials has shown a profit in 14 of the past 15 years. Its return on invested capital will be above 20% this year for the ninth year in a row.
Regeneron Pharmaceuticals had been seen by some investors as a one-trick pony, dependent upon its eye medication Eylea. In my opinion, that criticism is no longer true. Eylea remained the company’s biggest revenue producer in 2021, to the tune of $9.4 billion in sales. And one of that drug’s key patents will expire in 2023.
Regeneron has two other drugs with big sales, Regen-Cov (for Covid-19) with $7.6 billion in sales, and Dupixent (which treats several conditions, including eczema and esophagitis) with $6.2 billion. Dupixent is a joint venture with Sanofi.
Regeneron also has several approved drugs, each with sales of less than $1 billion.
I think Regeneron is on the bargain counter, having descended from more than $700 a share in April to about $586 now. Its five-year earnings growth rate is 24%, and the stock sells for a little over eight times earnings.
Covid testing has kept medical-testing companies busy lately. That contributed to Laboratory Corp. of America Holdings posting a five-year earnings growth rate of nearly 23%. But even if this pandemic abates, I think we have entered a world in which more people will have more medical tests more of the time.
Priced at a little over 11 times earnings, I think LH is appealing now. It also might lend a bit of stability to your portfolio if the pandemic continues and new variants of Covid-19 continue to plague the world.
Beginning in 2001, I’ve written 16 columns on stocks that possess both growth and value characteristics. (This is the 17th.) The average 12-month return on my recommendations has been 18.6%.
By comparison, the Standard & Poor’s 500 Total Return Index over the same periods has averaged 11.2%.
Of the 16 sets of recommendations, 12 have been profitable, while 11 have beaten the index.
Caution: My column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
My picks from a year ago declined 0.7%, while the index lost 8.4%. Homebuilder Pulte Group (PHM) was the biggest loser, down 15.4%. Supernus Pharmaceuticals (SUPN) was the best gainer, up 13.9%. In between were Allstate ALL , down 8.1% and American Business Bank (AMBX), up 6.7%.
Disclosure: I own Berkshire Hathaway personally and for almost all of my clients. Some of my clients own Allstate.