Investors often jump into expensive stocks that have strong momentum and grand underlying businesses. However, these stocks can underperform the broader market or even return losses if your entry point is too high.
On the flip side, stocks that offer both growth and value can outperform in both the short and long term. This is especially true for such companies that have been sitting at depressed levels since their selloffs last year.
For those seeking solid upside potential and a great margin of safety, these value-growth stocks are worth a look. These are companies that make for fantastic core portfolio holdings, and have the potential to amplify portfolio returns while insulating your portfolio from volatility.
These are the seven value-growth stocks I think investors would be wise to consider right now.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) has been languishing since its major selloff began roughly two years ago. Indeed, PYPL stock dropped from its peak of $308 per share in July 2021 to $74, at the time of writing. The main reasons for this decline have been the slowdown of e-commerce activity following the pandemic, and stagnating user accounts growth at PayPal.
However, I believe that PYPL stock offers tremendous value after its sustained decline, and isn’t likely to fall much further. E-commerce is starting to recover as consumers regain confidence and spending power, and PayPal is well-positioned to benefit from this trend. According to Bernstein, e-commerce is starting to recover gradually, “We estimate the US market grew 8% Y/Y in Q2, in line with Q1. However, after a soft April, eCommerce recovered and accelerated through the quarter,”
Moreover, PayPal has been successful in squeezing out solid growth and profits from its existing user base, which reached 433 million active accounts as of Q2 2023. The company reported revenue of $7.04 billion, up 8.6% year over year, and non-GAAP earnings per share of $1.17, up 33% year-over-year, beating analysts’ expectations. PayPal also announced a massive share buyback program of $5 billion. Therefore, I think betting on PayPal’s growth is a good strategy for long-term investors looking for value-growth stocks.
Cal-Maine Foods (CALM)
Cal-Maine Foods (NASDAQ:CALM) is a stock that offers everything an investor fancies. The company provides a forward dividend yield of 6.6%, great profits, and top-line growth, all with a forward price-to-earnings ratio of just 12.2-times. This company is the largest producer and distributor of fresh shell eggs in the United States, with a market share of about 19%.
The company reported solid top-line metrics. Its revenue of $688.7 million was up 16.1% year-over-year, and its net income of $110.9 million was up 0.9% year-over-year. That’s chiefly due to elevated egg prices. Of course, no business is perfect, and it’s true that egg prices aren’t likely to grow at this pace forever. However, I think these risks are already priced into CALM stock at this valuation.
Furthermore, Cal-Maine has a strong balance sheet with $647.9 million in cash and only $1.7 million in debt. This gives the company ample financial flexibility to weather any market downturns and invest in growth opportunities. Thus, I believe Cal-Maine is among the most well-rounded value-growth stocks to buy right now.
Match Group (MTCH)
Match Group (NASDAQ:MTCH) is the undisputed leader in online dating, with a portfolio of popular platforms such as Tinder, Match.com, Hinge, OkCupid, PlentyOfFish, and more.
The stock currently presents an attractive entry point for investors who want to tap into the online dating megatrend. Online dating is very much on the rise, especially among the younger generations who are more comfortable with using technology to find love.
Match Group dominates this space. As I’ve noted, it owns some of the most popular dating apps. The company’s financials also reflect positive trends in this sector. Analysts expect Match to grow its revenue 5% year-over-year in 2023, with growth likely to accelerate to a double-digit annual pace through 2025.
Crocs (CROX)
I first talked about this stock in May last year when it was trading at around $40 per share. Since then, it has performed tremendously, soaring to over $108 as of August 1, 2023.
As I’ve noted before, Crocs (NASDAQ:CROX) is very popular among the younger generation, and sales are growing very fast at a double-digit pace. Indeed, it has become a Wall Street darling over the past few months, and analysts still have a price target of $185 on this stock, implying 42% upside. I believe CROX stock is headed even higher over the long-run.
That’s partly due to analyst estimates around growth and profitability. Notably, analysts expect 13% sales growth this year and 11.3% earnings per share growth. This company has a track record of surprising analysts, so I anticipate much higher metrics.
With all that in mind, CROX stock trades at a forward price-to-earnings ratio of just 9-times, which is a bargain compared to its peers and the industry average. Moreover, Crocs has a strong balance sheet with $647 million in cash and no debt, giving it ample financial flexibility to invest in growth opportunities and return value to shareholders. Therefore, Crocs is one of the top value-growth stocks in my book.
Lockheed Martin (LMT)
The defense industry has shifted dramatically over the past one and a half years, and this shift is a massive advantage for defense companies. Increased government spending worldwide and the demand for cutting-edge equipment means these companies have the upper hand when it comes to pricing power. Accordingly, Lockheed Martin (NYSE:LMT) has seen an explosion in its profits, with its net margin expanding impressively. The company also boasts a massive backlog of $158 billion.
Notably, LMT stock provides a dividend yield of 2.7%, which sweetens the deal for income investors. Lockheed Martin has been raising its dividend for 20 consecutive years, with an average annual dividend hike of 9% over the past five years. This dividend amplifies the stock’s total return, and provides some stability for long-term investors.
Now, this defense giant hasn’t had the best year so far in the stock market, down 6.5% year-to-date. But I think this presents an attractive entry point for investors who want to tap into the defense megatrend. Lockheed Martin is the undisputed leader in this space, with a portfolio of popular and diverse platforms such as F-35, C-130, THAAD, PAC-3, and more. And of course, Javelins, HIMARS, and many other missile systems are in high demand right now.
With more geopolitical risk actually comes greater earnings stability for this company. That’s something long-term investors should keep in mind.
Friedman Industries (FRD)
Friedman Industries (NYSEMKT:FRD) is a company that produces and distributes steel products for various industries such as construction, energy, transportation, and agriculture. The company operates in two segments: coil products and tubular products. The coil products segment processes hot-rolled steel coils into sheet and plate products, while the tubular products segment manufactures electric resistance welded pipes.
This stock has recently gone vertical, as investors have realized the company’s massive growth opportunity. The stock is up more than 84.5% year-to-date, benefiting from strong demand for steel products. This has been especially visible during the pandemic recovery, as consumers and businesses ramp up their spending on infrastructure and equipment. In its latest quarter, Friedman reported revenue of $124.2 million, up 65.4% year-over-year, and net income of $6.3 million, up 184.6% year-over-year.
While I usually would stay cautious of stocks that have appreciated a lot recently, FRD is an exception in my book, as it still trades at a bargain price-earnings ratio of 5.8-times and has a small dividend yield of 0.45%. There is still a lot of smart money waiting to flow into this stock, which is why this is one of my favorite value-growth stocks right now.
Lovesac (LOVE)
Lovesac (NASDAQ:LOVE) is a furniture retailer that has also been on my radar for quite some time. The company has a bright outlook for the future, as analysts expect sales growth to accelerate to 16.3% in 2026 from 9.1% in 2023. Moreover, these same analysts also expect earnings per share to grow by a staggering 140% over the same period.
Despite this impressive growth story, LOVE stock trades at a forward price-earnings ratio of just 14-times. This is a great opportunity to invest in this company at bargain levels, as Lovesac is making a gradual U-turn, recovering from the pandemic-induced slowdown. Analysts seem to agree with me, as they have an average price target of $64 for Lovesac stock, implying impressive upside of 118.6%.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
