It can be hard to identify companies that are poised for growth and trade at prices that can be considered a great value. So to help you find such businesses, we asked three Motley Fool investors for some growth stocks that are currently trading at deep-value prices.
They picked Celgene Corporation (NASDAQ: CELG), Apache Corporation (NYSE: APA), and Verizon Communications (NYSE: VZ). Read on to find out why.
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A top biotech stock on sale
Todd Campbell (Celgene): You might look at Celgene's chart and think the sky is falling, but that's not necessarily true. Yes, the company's suffered setbacks, but it's still forecasting double-digit top- and bottom-line growth this year, and with shares trading at bargain-bin basement prices, investors might want to add it to long-haul portfolios.
Celgene's most important drugs -- Revlimid and Pomalyst -- contributed nearly $10 billion to the company's roughly $13 billion in sales last year, but Celgene also markets the blockbusters Abraxane, a cancer drug, and Otezla, a psoriasis drug. Thanks to label expansions, growing demand, and price increases, sales of those drugs grew 16% year over year in 2017.
So, why are Celgene's shares tumbling? You can blame a string of disappointments. First, a phase 3 trial of GED-0301, a Crohn's disease drug, failed. If GED-0301 had succeeded it could've been a nine-figure drug. Then, Otezla's sales growth slowed as competition in psoriasis intensified. Entering 2017, Celgene expected Otezla's sales would increase 57% to at least $1.5 billion. Unfortunately, its sales "only" increased 26% to $1.3 billion.
Shares fell again last week when the FDA sent Celgene a Refusal to File letter for ozanimod, a multiple sclerosis drug. Celgene thinks ozanimod's peak annual sales potential is between $4 billion to $6 billion, so the refusal to file is particularly disappointing. The letter, however, isn't a rejection. Celgene will meet with the FDA soon to address their questions, and assuming Celgene resubmits its application soon, this could simply end up being a frustrating delay.
Despite the setbacks, Celgene's still guiding for 12% sales growth and about 18% EPS growth in 2018. That's pretty good for a company of its size. Given shares have fallen from $145 to less than $90 since last fall, and investors can now pick up shares for less than nine times forward EPS, this stock could be worth buying.
Growth on the horizon
John Bromels (Apache Corporation): After the February market correction and a post-earnings drop, shares of independent oil and gas exploration and production company Apache Corporation briefly fell to their lowest levels since 2004. They've recovered a bit, but they're still sitting in deep-value territory, below $36 per share: a great price for this stock with high growth potential over the next three years.
A big part of Apache's growth story is its monster Alpine High play in West Texas. Apache has been building out infrastructure in the region, which has slowed the pace of production there, but it should come fully on line this quarter. And once it does, Alpine High production is expected to grow by leaps and bounds: after producing just 9,000 barrels of oil equivalents per day (BOE/D) in 2017, the play is expected to yield 40,000-50,000 BOE/D in 2018 and 160,000-180,000 BOE/D by 2020. That in turn is expected to help double the company's Permian Basin production by 2020. The company anticipates overall production to increase by more than 35% by 2020.
The market is being short-sighted, looking only at the company's 2018 production guidance. Wall Street is also worried that potential future volatility in oil prices will mean Apache's margins won't hold up. But that's a risk for every company in the sector -- not just Apache -- and meanwhile, Apache's 2.8% current dividend yield will help to keep patient investors satisfied while its production ramps up. It's a great time to buy into this bargain-basement oil stock.
This telecom titan still has more life in it
Chris Neiger (Verizon Communications): I admit that Verizon probably isn't the first company that many people think of when they're compiling a list of growth stocks. But I like to highlight what Verizon's doing right now because the company could be on the verge of turning a corner.
Verizon spent most of 2017 trying to figure out how regain wireless customers it had lost. Aggressive marketing for unlimited data plans from AT&T and T-Mobile lured customers away from Verizon, and the fact that cellular network speeds and reliability are virtually indistinguishable between carriers these days didn't help either.
The loss of customers hurt Verizon's top and bottom lines and that led to the company's shares essentially staying flat throughout 2017, while the S&P 500 gained 19%. Verizon's poor performance has left its shares trading at less than 11 times the company's forward earnings.
But Verizon started gaining steam toward the end of the year. In the fourth quarter, it added 1.2 million net new wireless customers, operating revenue was up 5% year over year, and Internet of Things revenue jumped 17%. The company's media business, Oath, saw sales climb 10% sequentially, to $2.2 billion.
Verizon's management also estimated that the company's full-year 2018 revenue will grow by low-single-digit percentages, which is better than the 1% analysts had been expecting.
The company is still the nation's No. 1 wireless carrier and it proved in the fourth quarter that it can take a few hits and still move forward. The telecom titan is now looking to new technologies like 5G to expand its wireless dominance, and if it can gain an early foothold in this space, then Verizon could see even more growth from its wireless business.
Investors should also keep a close eye on any gains made by the company's Oath business (which includes its purchases of AOL and Yahoo!), as Verizon will likely be looking for new ways to add additional revenue from its content offerings.
This wireless carrier may still have some significant hurdles to overcome in the coming years, but its latest quarter proves that Verizon can still win over wireless customers and expand its smaller revenue streams as well -- all of which means this deep-value stock could be poised for more growth over the long term.
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Chris Neiger has no position in any of the stocks mentioned. John Bromels owns shares of Apache and Verizon Communications. Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene and Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.