Earnings growth typically drives stock prices. Three stocks are set to grow at double and even triple-digit rates this year, yet their prices stay at more than 30% discounts from their 52-week highs. Whether underrated or just forgotten, they are cheap stocks that shouldn’t be so.
The names to keep in mind for your ‘growth at a discount’ watchlist can include Hecla Mining (NYSE: HL), Wayfair Inc. (NYSE: W), and even Mobileye Global Inc. (NASDAQ: MBLY). Combining tailwinds in the global economy on top of above-average earnings per share (EPS) growth can allow investors to grow their portfolios by double digits in this new cycle.
Professional traders use a process called ‘top-down’ analysis to understand the macro developments at play. By understanding what is about to happen in the economy, investors can better decide where their money could see better returns.
Get Ready for a Money Shift
Analysts at The Goldman Sachs Group Inc. (NYSE: GS) gave Main Street an insight into their 2024 strategy. In their macro outlook report, it is clear that the investment bank expects to see a breakout in the manufacturing sector of the U.S. economy.
Their expectations became evident after the ISM manufacturing PMI index reported a 6.4% jump in new export orders, the highest expansionary reading for the month of February. This means that demand for precious metals, home furnishings, and even original equipment manufacturers (OEM) could go higher.
Of course, Goldman is betting that potential interest rate cuts by the Federal Reserve (the Fed) will revive manufacturing. So far, they are right. As the PMI shows, lower interest rates could lower the dollar, making U.S. exports more attractive to foreign nations.
But the buck doesn’t stop there; lower interest rates could create more demand for luxury goods (silver), spur homebuying activity (furniture), and stimulate car loan financing (need for OEM parts).
Precious Metals Are in Play
After rallying to all-time highs, gold prices also gave way for other precious metals to go higher. For silver, this meant a rally of 23% from the fourth quarter of 2023 until now. While investors could take the risk and bet on futures contracts to profit from rising silver prices, there is a better way to beat the market.
Mining stocks tend to follow – and even amplify – the price action in the commodity they mine. This is why Hecla mining analysts see up to 700% EPS growth in the next 12 months.
As a silver miner, the company will sell more expensive silver and report the profits in the coming quarterly reports. Because the stock trades at only 61% of its 52-week high, institutions like Vanguard increased their position in the stock by 0.6%, calling for a $1.6 million transaction.
More than that, Hecla’s forward P/E valuation of 53.3x forward P/E makes it 252% more expensive than the mining industry’s 15.2x average valuation. There must be a good reason for the market to overpay for this stock; now investors know that reason.
Lower interest rates make the dollar weaker, and silver is quoted in dollars, so it could be a no-brainer investment to keep expecting higher silver prices ahead.
Furnishing Homes at Double-Digit Growth
For Wayfair, another major trend is helping Wall Street identify the potential upside in its stock. As Warren Buffett spotted an opportunity in real estate stocks coming soon, others affected by this boom – like furniture – could also benefit.
The overall cost of buying a home could be much lower now that interest rates could bring mortgage costs lower, and the National Association of Realtors (NAR) just changed how agents get paid commissions. Homebuying activity spurs could be why analysts at Morgan Stanley (NYSE: MS) see a price target of $80 for Wayfair.
Calling for a 27% upside, the valuations come as a result of the 176% EPS growth projected for this year. These assumptions could only be justified by the winds blowing in the real estate market, which could call Wayfair to furnish newly bought homes.
Cars Are Next, so Are Parts
As lower interest rates also stimulate new car financing, retail companies must restock their OEM inventory, where Mobileye comes into play.
There must be a good reason why The PNC Financial Services Group Inc. (NYSE: PNC) and Vanguard both upped their exposure to Mobileye stock, especially last quarter when the stock rallied by 36%. Trading at 66% of its 52-week high prices makes the stock a cheap growth story today.
Expecting 358% EPS growth this year, analysts are correct in their 42% upside projections with a $44.3 share price target. After all, its 42.7x forward P/E valuation puts it 324% above the industry average of 10.1x valuation. Again, “It must be expensive for a reason,” and investors are starting to figure out what that reason could be.
