Growth stocks can sometimes trade at inflated valuations because of their attractive long-term potential. So if you have the option of investing in a growth stock that is not trading at a premium but rather at a discount, you should definitely consider adding it to your portfolio.
Two unloved growth stocks that trade at low multiples of future earnings and look incredibly cheap right now are Bristol Myers Squibb (NYSE: BMY) and ViacomCBS (NASDAQ: VIAC).
1. Bristol Myers Squibb
Health giant Bristol Myers Squibb is a stock investors could easily overlook at this time. From a distance, his finances look horrible. For the past 12 months, the company has suffered a net loss of $ 5 billion. So investors who rely on equity filters to try and find good buys could easily ignore Bristol Myers – and they did. Since the start of the year, healthcare stocks are down around 2% while the S&P 500 climbed 16%.
But investors who dig a little deeper will find a slightly different story. The huge loss is actually due to a massive research and development charge of more than $ 11 billion the company incurred for its acquisition of MyoKardia, a clinical-stage biopharmaceutical company that develops cardiovascular medicine. This had a negative impact on the fourth quarter of last year and still has an impact on the numbers for the last 12 months.
Over the past two quarters, however, the company has been firmly in the dark. In the first six months of 2021, Bristol Myers’ revenue of $ 22.8 billion grew 9% year-on-year, and its net profit grew from a loss of $ 846 million in 2020 at a profit of $ 3.1 billion.
Meanwhile, with free cash flow of $ 11.7 billion in the past four quarters, its dividend also looks strong. The company paid out $ 4.2 billion during that time while making share buybacks for $ 4.5 billion. This is further proof that the accounting result cannot be used on its own to assess the health of a company’s operations. Cash flow is arguably a much more important metric than net income – and by that measure Bristol Myers is doing very well.
So a closer look at Bristol Myers suggests the company is a much safer buy than its numbers seem at first glance. A futures price-to-earnings (P / E) ratio can be useful for companies when one or two bad quarters have taken a toll on their numbers. And by that metric, Bristol Myers is only trading at a P / E of 8 – insanely cheap compared to other health stocks, such as Merck (NYSE: MRK) and Amgen (NASDAQ: AMGN), both of which are trading at around 13 times their future profits.
Finally, there’s the 3.3% dividend yield, which is more than double the 1.3% of the S&P 500. Whether you’re a growth investor or love a good dividend, this is about an underrated health action that should be on your radar.
Another stock that is trading at a low valuation is ViacomCBS. With a forward P / E multiple of just 10, it’s nowhere near the premium investors pay for other companies in the entertainment and streaming industry, such as Netflix (NASDAQ: NFLX) and Walt disney (NYSE: DIS) – trading respectively at 56 and 70 times their forward profits.
Granted, ViacomCBS’s Paramount + streaming service isn’t as popular, and that could be one reason why investors aren’t giving the stock so much chance. Overall, the company has a total of 42 million streaming subscribers worldwide (including Paramount + and other smaller services like Pluto TV). By comparison, Netflix has over 200 million subscribers while Disney + now has 116 million.
But Paramount + doesn’t have to be the best streaming service for ViacomCBS to be an attractive buy. In its most recent quarter ended June 30, the company reported that streaming revenue increased 92% to $ 983 million from the previous year, and ad revenue increased 24% to $ 2.1 billion.
The company’s only flaw was its ‘licensing and other’ segment, which fell 36% to $ 1.2 billion – affected by the lack of theatrical releases during the pandemic. That kept the company’s sales growth relatively modest in the last quarter, increasing 8% to $ 6.6 billion. However, as the economy continues to recover from the pandemic, these numbers are expected to strengthen.
Meanwhile, ViacomCBS is also offering investors an above average dividend yield of 2.4%. And with $ 2.6 billion of cash on hand over the past 12 months, it is generating more than enough to cover the $ 601 million in dividends it paid out during that time.
So while Paramount + may be an afterthought for some investors looking to get into the best streaming stocks, it could actually be an opportunity. Shares of ViacomCBS still go unnoticed – up just 8% this year. As the number of subscribers continues to increase and revenues improve, it may only be a matter of time before the stock takes off.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.