3 Top Growth Stocks That Are on Sale

Much has been said of the rotation out of growth stocks and into value stocks this year. But since the middle of May, it has been growth stocks that have been the better performers. Since May 12th, the SPDR S&P 500 Growth ETF (SPYG) is up 17.5%, compared to a gain of 3.3% for the SPDR S&P 500 Value ETF (SPYV).

I believe growth stocks are seeing their shares rise again due to two reasons. First, after falling during the first few months of 2021, their share prices started to look attractive again. And second, the recent surge in COVID-19 cases driven by the Delta variant has brought increased attention to the growth areas of the market that performed well during the lockdowns of 2020.

While some of the big-name growth tech stocks have seen their shares rise again, plenty of other growth stocks are still trading at very attractive valuations. So, I ran a search in our POWR Ratings system for stocks that were rated a Buy or Strong Buy with a Growth Grade and Value Grade of A. Kohl's Corporation (KSS), Teradata Corporation (TDC), and Meritor, Inc. (MTOR) are three such stocks, which is why I am highlighting them below.

Kohl's Corporation (KSS)

KSS is a U.S.-based department store chain that operates over 1,100 department stores in 49 states. The company sells moderately priced private-label and national brand clothing, shoes, accessories, cosmetics, and home furnishings. It also operates an e-commerce site with a more robust product selection and 12 Fila athletic apparel outlets.

The company has benefited from a strategic initiative that it launched last fall, where management wanted to increase sales and expand its operating margin. As part of this plan, the company is working to reignite growth in its women's business and build a large beauty business. Its recent alliance with Sephora should help achieve the latter.

KSS has also been gaining from its digital business. In the second quarter, digital sales increased 35% from the same quarter in 2019. Total revenues came in at $4.4 billion, up 30.5% year over year. Sales were driven by growth in the company's store sales as customers returned to physical stores. The company also recorded the highest operating margin in ten years.

This was due to efficient pricing and promotional strategies, cost management, and inventory management. The company has an overall grade of B, which translates into a Buy rating in our POWR Ratings service. KSS has a Growth Grade of A, which makes sense when looking at its most recent quarter. In addition to solid revenue growth, adjusted earnings surged to $2.48 per share from a loss of 25 cents in the same quarter last year.

The company also has a Value Grade A due to its low valuation metrics. For instance, its trailing P/E is only 12.37, while its forward P/E is 14.16. We also provide Momentum, Stability, Sentiment, and Quality Grades for KSS, which you can find here. KSS is ranked #15 in the A-rated Fashion & Luxury industry. For more top stock in this industry, click here.

Click here to check out our Retail Industry Report for 2021

Teradata Corporation (TDC) 

TDC is a leading provider of hybrid cloud analytics software. Its analytics platform allows customers to integrate and simplify their analytics ecosystem, access and manage data, and use analytics to extract answers and derive value from data. Its solutions include data warehousing, big data, discovery tools, integration tools, and business intelligence tools.

The company's target market is companies that are large-scale users of data. These firms are seeing a huge increase in data-driven by the pandemic-driven move to digital, as well as an increase in the complexity, cost, and risk associated with managing large sets of data across diverse environments. TDC's transition to a subscription-based business model has been boosting recurring revenues.

The firm's second-quarter performance benefited from this momentum as its revenues and earnings rose year over year. The recurring business model is expected to be a long-term growth driver for the company. TDC is also benefiting from the expansion of cloud-based features in its Vantage platform. This solution is available at top public cloud vendors such Google Cloud, AWS, and Azure.

The company continues to add features to the cloud and on-premise platform to address customer needs for both high performance and hybrid analytics. TDC has an overall grade of A and a Strong Buy rating in our POWR Ratings system. The company has a Growth Grade of A, which isn't surprising as Wall Street analysts forecast earnings to rise 50.4% this year and 22.1% per year over the next five years.

The company also has a Value Grade of A. Its price-to-free-cash-flow ratio of 14.2 is well below the industry average of 22.9. For the rest of TDC's grades (Momentum, Stability, Sentiment, and Quality), click here. TDC is ranked #1 in the A-rated Technology – Storage industry. For more top-ranked stocks in this industry, click here.

Click here to check out our Cloud Computing Industry Report for 2021

Meritor, Inc. (MTOR)

MTOR is a manufacturer of automobile parts for commercial vehicles and industrial markets. The company offers drivetrain, axle, brake, and suspension solutions for commercial trucks, trailers, buses, and defense contractors. It serves original equipment markets and the aftermarket segment for the transportation and industrial sectors.

The company is on track to achieve its M2022 goals. The focus is on new business opportunities, margin expansion, and cost-cutting efforts. Based on these goals, MTOR is expected to reach a margin target of 12.5% and drive 75% free cash flow conversion. Plus, its expectation for the fiscal year 2022 is to exceed its target of $300 million of new business wins by $150 million.

MTOR is also benefiting from its buyout of AxleTech, which helped generate more growth. The deal is expected to provide between $175 million to $200 million in revenue for fiscal 2022. The buyout added to MTOR's portfolio with a full line of independent suspensions, new braking solutions, material handling axles, and drivetrain components. It also diversified Meritor's exposure in adjacent end markets.

Plus, the firm is seeing consistent contract wins. For instance, the company has contracts with Lion Electric, Volta Trucks, and Autocar to supply electric powertrains. It also has an agreement with Hyliion (HYLN) to provide electric subsystems for its Hypertruck ERX. The company has an overall grade of B, translating into a Buy rating in our POWR Ratings system.

MTOR has a Growth Grade of A as its growth prospects look strong. Analysts expect revenue to rise 34% year over year this quarter, while earnings are forecast to surge 280%. The company also has a Value Grade of A as its forward P/E is a paltry 5.13. To gain access to the rest of MTOR's grades (Momentum, Stability, Sentiment, and Quality), click here.

MTOR is ranked #22 in the B-rated Auto Parts industry. For more top-ranked stocks in this industry, click here.

Click here to check out our Automotive Industry Report for 2021

Discover Today’s Best Value Stocks

This article was written by David Cohne, Chief Value Strategist for StockNews.com.  David has helped investors find the most profitable stocks for over 20 years

If you would like to see more of his best value stock ideas, then click the link below.

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KSS shares were unchanged in after-hours trading Wednesday. Year-to-date, KSS has gained 49.00%, versus a 20.86% rise in the benchmark S&P 500 index during the same period.

David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.

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