These growth stocks could be V


When we think of value stocks, we usually don’t think of stocks that have risen sharply in prices over the past year. Instead, many value investors tend to look to stocks that have recently fallen in price in order to take advantage of the price rally once the company recovers from the headwinds it is struggling with. .

However, while stocks that have recently lost value may offer opportunities for value, they may also continue to fall. Likewise, just because a stock has risen does not mean that it is certain that it will correct itself in the near future. What matters most about value investing is whether or not the stock is trading below what the company will be worth in the future.

The DCF model

One way to look for stocks that might trade below the value of their potential for future earnings is to use a discounted cash flow (DCF) model. The purpose of a DCF model is to estimate how much money can be made from an investment based on its expected future cash flows, adjusted for the time value of money (because every dollar is worth more now. than it will be in the future).

Three basic estimates are involved in this valuation model: future cash flows, the final value of the investment, and an appropriate discount rate. Investors have many different calculations for the DCF, but this is the basic principle of the method.

In addition to a user-defined customizable DCF template that can be used to estimate the intrinsic value of specific stocks, GuruFocus also offers an option through the all-in-one filter to filter stocks that are trading at a price. less than intrinsic value. estimated by a predefined DCF model. The predefined DCF model is based on the following assumptions:

  1. Growth rate at growth stage: The average growth rate of profits over the past 10 years.
  2. Years of growth to growth stage: 10
  3. Growth rate at terminal stage: 4%
  4. Years of growth to terminal stage: 10
  5. Discount rate: 8%

While the DCF model is only an estimate of the future and does not take into account the many unique factors, strategic changes, or unexpected events that could affect individual businesses, it can be a good starting point to research potential investment opportunities.

With that in mind, I used the GuruFocus All-in-One Screener to look for stocks trading below their intrinsic value calculated by the DCF model. I was surprised to find that several of the stocks that crossed this screen were names that had posted double-digit gains over the past year. It looks like these stocks could still represent valuable opportunities despite their recent acceleration, although investors should still do their own due diligence before deciding whether an investment is right for them.

Facebook Inc.

Social media giant Facebook Inc. (FB, Financial) was trading around $ 364.06 per share on September 17, against an intrinsic value of $ 568.63 calculated by GuruFocus’s earnings-based DCF model. This implies a safety margin of 36%.

Facebook shares have gained 41% in the past 12 months. The price-to-earnings ratio stands at 26.94, which is below the company’s 10-year median of 37.33. The GuruFocus Value chart rates the stock as “fairly valued”.

The business has a financial strength rating of 7 out of 10, a profitability rating of 10 out of 10, and a business predictability rating of five out of five stars (the higher the business predictability rating, the more it is likely that the business will continue to grow).

Facebook has steadily increased its results and results in recent years. Morningstar analysts say the company is expected to increase revenue to $ 118 billion in 2021 and $ 176 billion in 2024, while earnings per share (EPS) are expected to reach $ 14.07 in 2021 and 20. .09 in 2024.

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Beauty Ulta Inc.

Beauty store chain Ulta Beauty Inc. (ULTA, Financial) was trading around $ 379.07 per share on September 17, against an intrinsic value of $ 510.99 calculated by GuruFocus’s earnings-based DCF model, which implies a 26% margin of safety.

Ulta shares have gained 59% in the past 12 months. The price-to-earnings ratio stands at 29.22, which is below the company’s 10-year median of 35.11. The GuruFocus Value chart rates the stock as “fairly valued”.

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The company has a financial strength rating of 6 out of 10, a profitability rating of 8 out of 10, and a business predictability rating of three out of five stars.

Ulta had seen strong growth in revenue and results until the Covid-19 pandemic hit. Morningstar analysts say the company is expected to surpass pre-Covid levels in fiscal 2022, reaching revenue of $ 8.14 billion and EPS of 14.46. Revenue is expected to continue growing to $ 9.58 billion in fiscal 2024, while EPS reaches $ 18.35.

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Lowe’s Companies Inc.

Home improvement retailer Lowe’s Companies Inc. (MEUGLER, Financial) was trading around $ 209.56 per share on September 17, against an intrinsic value of $ 323.95 calculated by GuruFocus’s earnings-based DCF model. This implies a safety margin of 35%.

Lowe’s shares have gained 25% in the past 12 months. The price-to-earnings ratio stands at 21.62, which is slightly lower than the company’s 10-year median of 22.13. The GuruFocus Value chart rates the stock as “moderately overvalued”.

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The company has a financial strength rating of 5 out of 10, a profitability rating of 8 out of 10, and a business predictability rating of five out of five stars.

Lowe’s has seen steady growth in both revenue and earnings throughout its history, peaking higher than usual in fiscal 2021. Morningstar analysts say the company is expected to stagnate in terms of revenue growth, with revenue expected to be $ 91.62 billion in fiscal 2022 and $ 92.65 billion in fiscal 2024. EPS is expected to continue to rise to reach $ 11.13 in fiscal 2022 and $ 12.40 in fiscal 2024.

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Whirlpool Company

Home appliance manufacturer Whirlpool Corp (RTH, Financial) was trading around $ 210.63 per share on September 17, against an intrinsic value of $ 442.78 calculated by GuruFocus’s earnings-based DCF model, which implies a 52% margin of safety.

Whirlpool shares have gained 18% in the past 12 months. The price-to-earnings ratio stands at 6.98, which is significantly lower than the company’s 10-year median of 15.31. The GuruFocus Value chart rates the stock as “significantly overvalued”.

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The company has a financial strength rating of 5 out of 10, a profitability rating of 7 out of 10, and a business predictability rating of three out of five stars.

While the company’s revenue growth has been stable, its results have been volatile in recent years as it has struggled to adjust to rising costs and higher tariffs on steel. . Analysts polled by Morningstar don’t seem to have a good opinion of this company, as they predict revenue will rise to $ 22.75 billion in 2021 before dropping to $ 22.29 billion in 2022. Likewise, EPS is expected to hit $ 27.48 in 2021 before dropping. to $ 20.69 in 2022.

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Lam Research Corp

Lam Research Corp (LRCX, Financial) was trading around $ 608.98 per share on September 17, against an intrinsic value of $ 1,134.73 calculated by GuruFocus’s earnings-based DCF model, which implies a 46% margin of safety.

Lam Research shares have gained 100% in the past 12 months. The price-to-earnings ratio stands at 22.48, which is above the company’s 10-year median of 18.81. The GuruFocus Value chart rates the stock as “moderately overvalued”.

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The company has a financial strength rating of 6 out of 10, a profitability rating of 9 out of 10, and a business predictability rating of three out of five stars.

Lam Research has grown its financial results fairly steadily, with growth accelerating in recent years. Analysts polled by Morningstar expect the strong growth trend to continue, forecasting revenues to reach $ 18.15 billion in fiscal 2022 and $ 19.80 billion in fiscal year 2022. Fiscal 2024. EPS is expected to reach $ 35.67 in fiscal 2022 and $ 42.49 in fiscal 2021.

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