3 Top Stocks for Growth Investors to Buy Now
The undervalued stocks of these mid-sized companies with economic moats look attractive.
Susan Dziubinski: I’m Susan Dziubinski with Morningstar. Finding undervalued growth stocks to buy isn’t easy today. Heading into November, growth stocks looked about 14% overvalued, according to Morningstar’s metrics. Large-cap growth stocks are even more overvalued; as a group, they’re trading 16% above our fair value estimate.
What’s a growth investor with some money to invest to do? Consider midsize growth companies, where there are more undervalued stocks to choose from.
Today, we’re doing just that: We’re looking at stocks that land in the mid-growth portion of the Morningstar Style Box. These companies also have carved out economic moats, which means Morningstar expects them to remain competitive for a decade or more. And the stocks are all undervalued.
Based on a combination of quality and valuation, we think these stocks are attractive for growth investors.
3 Top Stocks for Growth Investors to Buy Now
Our first undervalued growth stock is Veeva Systems. Veeva is the leading provider of cloud-based software solutions in the life sciences industry. Morningstar thinks Veeva has carved out a wide economic moat, thanks to the company’s high customer retention rate and high switching costs. The stock hasn’t kept up with the market this year, probably because management cut guidance for the fiscal year in late 2023. But the company reported better-than-expected quarterly results in late August, and management ticked up guidance for the year. Veeva stock looks cheap; we think it’s worth $273 per share.
Our second undervalued growth stock is Rentokil Initial. Rentokil is the world’s largest commercial pest-control business. Morningstar assigns the company a wide economic moat rating, due to the company’s cost advantages. But Rentokil stock has been in the dumps this year, as the company’s North American pest control business has been struggling. But we think management is addressing the sources of the weakness, which include underresourcing of sales and marketing, as well as employee retention challenges within its Terminix business. The stock looks appealing as it trades well below Morningstar’s $40.30 fair value estimate.
Our final undervalued growth stock is Dexcom. The company manufactures continuous glucose monitoring systems for diabetic patients. We recently upgraded the company’s economic moat rating to narrow, as the firm now possesses scale and profitability. Intangible assets that include intellectual property, its record of innovation, and its sterling reputation underpin its moat rating. Now, admittedly, it’ll take some fortitude to buy this stock, given that it’s down about 40% this year, due to operational issues that’ve pulled down revenue growth and margins. But Morningstar expects stability to return in 2025. We think Dexcom stock is worth $94 per share.
For more undervalued stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.
Morningstar senior analysts Grant Slade and Debbie Wang and analyst Keonhee Kim provided the research behind this segment.
Watch 3 Wide-Moat Stocks for Your Watchlist for more from Susan Dziubinski.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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