By Tezcan Gecgil, Investor Place, Trades Of The Day, 2024-08-12
Market volatility can often be a goldmine for savvy investors looking to snap up undervalued growth stocks at bargain prices. The broader market has seen significant appreciation in 2024, driven largely by the technology sector.
Yet, certain stocks have remained underpriced despite maintaining solid fundamentals and great growth prospects. As the market continues its upward trajectory in the third quarter (Q3), these overlooked gems present an opportunity for investors.
Moreover, the recent panic selling in early August has pushed some high-quality companies below their intrinsic value. These sudden market fluctuations present compelling buying opportunities, especially for stocks that are already undervalued.
Today, we delve into three undervalued growth stocks with real potential. By incorporating these compelling picks into a well-diversified portfolio, investors can unlock significant growth opportunities in Q3 and beyond. Remember, successful long-term investing often involves identifying undervalued companies with the potential to outperform the broader market.
Adeia (ADEA)
First on our list of undervalued growth stocks is Adeia (NASDAQ:ADEA), an intellectual property (IP) licensing company, specializing in media, entertainment and semiconductor technologies. Adeia's offerings cover a wide range of applications, including TVs, smartphones, streaming services and social media platforms.
In the Q2 of 2024, Adeia posted solid results. Revenue grew 5% year-over-year (YOY) to $87.4 million. Net income and adjusted diluted EPS both rose 8%, reaching $31.1 million and 28 cents, respectively. The company reaffirmed its full-year 2024 revenue outlook and updated financial projections, reflecting lower operating and interest expenses.
Many investors regard Adeia's strong position to be supported by its extensive portfolio of over 11,500 patents and a successful track record in monetizing its IP. Recently, it secured five licensing deals, including a multi-year license agreement with X (formerly Twitter) that resolved prior litigation.
Long-term renewals with notable players like Liberty Global (NASDAQ:LBTYA, NASDAQ:LBTYB, NASDAQ:LBTYK) and Mitsubishi Electric (OTCMKTS:MIELY) highlight Adeia's strong customer retention.
Yet, ADEA stock has declined 15% since January. Meanwhile, we should note that it currently offers a 1.8% dividend yield, and is trading at 7.9 times forward earnings and 3.3 times sales. Finally, analysts have set a 12-month median price target of $15.00, indicating a potential 35% upside from current levels.
Celestica (CLS)
Continuing our list of undervalued growth stocks is Celestica (NYSE:CLS), a Canadian-based electronic equipment supplier. Celestica supports other companies in producing complex electronic products. Its services extend to development, manufacturing, assembly, testing and logistics. The company operates in two segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS).
Celestica's Q2 2024 earnings were robust. Revenues increased 23% YOY to $2.39 billion. The CCS segment saw a 51% revenue increase and improved margins, while ATS revenue dropped 11% but remained profitable. Adjusted EPS surged 65% YOY to 91 cents, with the company anticipating adjusted EPS between 86 and 96 cents for the upcoming quarter.
In May, Celestica launched four new compact and scalable networking switches to meet modern business needs. Looking ahead, the CCS segment is well-positioned to benefit from rising investments in artificial intelligence (AI) infrastructure, boosting its competitive edge as demand for AI solutions grows.
Despite the recent dip from its 52-week high of $63.49, CLS stock is still up over 55% year-to-date (YTD). Currently, it trades at an attractive valuation of 12.2 times forward earnings and 0.61 times sales. Analysts are optimistic about Celestica's prospects, with a 12-month median price forecast of $64.00, suggesting a potential upside of nearly 40%.
Zoom (ZM)
Rounding out our list of undervalued growth stocks is unified communications and collaboration company Zoom (NASDAQ:ZM). Known for its unified communications platform, Zoom has become a brand among remote work collaboration tools. Its offerings include Zoom Meetings, Phone, Chat, Rooms and Events.
In late May, Zoom released positive results for the Q1 of fiscal year 2025. Revenue increased 3.2% YOY to $1.1 billion, showcasing its resilience in a post-pandemic world. Income from operations grew 8% YOY to $457 million and diluted net income per share jumped 16.5% to $1.35. We should also highlight that the company is debt-free.
Zoom has also been advancing its AI capabilities. The recent launch of Zoom Docs, an AI-driven document platform, enhances productivity and streamlines workflows. This innovation, along with AI integration across Zoom Contact Center and Zoom Workplace, could position the company well for future growth.
With a decline of over 20% in ZM stock this year, shares currently trade at a relatively low valuation of 11 times forward earnings and 3.8 times sales. Finally, Wall Street has a 12-month median price target of $76.70. Such an advance in ZM share would imply over a 35% upside potential from current levels.
— Tezcan Gecgil
Source: Investor Place
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