Growth stocks have been on a tear over the past year. The SPDR S&P 500 Growth ETF (SPYG) is up 88.8%% since March 23, 2020. Due to that strong performance, many top growth stocks are trading at sky-high valuations. But there are still some growth stocks trading at reasonable valuations if you know where to look.
One place to focus on is stocks that combine growth and value attributes. This is a strategy called growth at a reasonable price, or GARP. The strategy involves finding stocks with the potential for growth that are also trading at discount prices. Finding stocks that fit this criterion can offer quick profits in the near term.
There are a few different ways to find GARP stocks, but I am going to be using our proprietary POWR Ratings service in this example. I ran a screen using the POWR Ratings to find stocks that had an overall POWR Rating of Strong Buy or Buy, a Growth Grade of A or B, and a Value Grade of A or B. I narrowed that list down to three stocks, which include The Mosaic Company (MOS), McKesson Corporation (MCK), and Bunge Limited (BG).
The Mosaic Company (MOS)
Formed in 2004 by the combination of IMC Global and Cargill's fertilizer business, MOS is a leading producer of primary crop nutrients phosphate and potash. The company has phosphate rock mines in Florida, Louisiana, Brazil and Peru, and potash mines in Saskatchewan, New Mexico, and Brazil. The company is expected to benefit from a growing global demand for fertilizer.
Due to higher crop prices and strong farmer demand for crop inputs, the price of fertilizer is expected to increase. Plus, potash prices should increase over the long term as demand rebounds from last year. There will also be an increased demand for potash in China and India as these two countries are looking to increase the food supply. Phosphate prices should continue to rise off tightening supply and robust demand in Brazil and India.
MOS has an overall grade of B, which translates into a Buy rating in our POWR Ratings service. The company has a Growth Grade of A as revenue is expected to rise 23.8% year over year in the most recent quarter. Earnings are expected to soar 916.7% year over year in the same quarter and another 700% in the next quarter.
The company also has a Value Grade of B, which isn't surprising, with a trailing P/E of 17.86 and a low forward P/E of only 11.79. We also grade MOS based on Momentum, Stability, Sentiment, and Quality. You can find those grades here. MOS is ranked #10 in the Agriculture industry. You can find other top stocks in this industry by clicking here.
McKesson Corporation (MCK)
MCK is the largest leading third-party logistics provider. The company is engaged in wholesale pharmaceutical and medical products sourcing, distribution and dispensing, contract manufacturing, and related IT services to acute care hospitals and health systems, independent and chain retail pharmacies in North America, Europe, and Canada.
The company has benefited from continued traction in specialty drugs with higher price points and its Centers for Medicare & Medicaid Services designation as the centralized supplier of COVID-19 vaccines. Its core business, pharmaceutical distribution services, is driven by drug pricing, a mix of generics drugs versus branded drugs, and volume.
MCK recently launched a multi-year strategic growth initiative to increase efficiency, accelerate execution, and improve long-term performance. The company has an overall grade of A or a Strong Buy rating in our POWR Ratings service. It has a Growth Grade of A due to strong analyst forecasts. Earnings are expected to rise 16.9% year over year in the most recent quarter and 49.5% in the next quarter.
MCK has a Value Grade of B, which makes sense with a trailing P/E of 14.38 and a forward P/E of 10.22. To access MCK's other grades (Momentum, Stability, Sentiment, and Quality), click here. MCK is ranked #3 in the Medical – Services industry. You can find other top stocks in this industry here.
Click here to checkout our Healthcare Sector Report for 2021
Bunge Limited (BG)
BG is a global agribusiness and food company with operations along the farm-to-consumer food chain. Its agribusiness segment generates roughly two-thirds of profits and includes the largest oilseed processing capacity globally.
The company has a large footprint in South America, which is expected to increase grain merchandising volumes. BG's move into edible oils also gives the company more room for growth going forward. Plus, since BG is a major processor of soybeans, which are crucial in animal feeds, the company should see gains as emerging economies consume more meat. In the near term, though, the firm should see increased profits from higher crop prices.
BG has an overall grade of B or a Buy rating in our POWR Ratings service. The company also has a Growth Grade of A, which isn't surprising as its earnings are forecasted to soar 210.4% year over year in the most recent quarter. BG also has a Value Grade of B with a trailing P/E of 10.40 and a forward P/E of 12.97.
You can find BG's other grades (Momentum, Stability, Sentiment, and Quality) here. BG is ranked #7 in the Agriculture industry.
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MOS shares rose $0.12 (+0.39%) in after-hours trading Monday. Year-to-date, MOS has gained 35.29%, versus a 9.04% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. 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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