There’s no denying that Tesla (TSLA) is one of the top stocks in 2020, up 414.9% so far. But there are three other growth stocks that I believe are much better buys right now.
While TSLA is attempting to revolutionize the automobile industry, the stock price is not reflective of its real value. Morningstar has a fair value price of $195 for the stock, well below its closing price today of $430.83. The stock also has a sky-high trailing P/E of 1,062.
Those figures make me think that its future success is already factored into the stock’s price. In finding growth stocks, I want stocks with an impressive past growth history and the potential for robust growth next year. I also wanted stocks that had more down to earth valuations. The valuations don’t need to be in value territory; I just want a valuation that isn’t ridiculous.
After running the numbers, I found three stocks that fit these criteria. Advanced Micro Devices (AMD), The Boston Beer Company (SAM), and Quidel Corporation (QDEL) are impressive growth stocks that aren’t trading at absurd valuations.
Advanced Micro Devices (AMD)
AMD has been performing quite well during the pandemic due to the fact that its customers still require AMD’s portfolio of offerings. As people work from home, the demand for laptops and desktops have surged. These products require the chips that AMD provides. The need for servers has also increased due to the rise of cloud computing services.
The company will also benefit from the rollout of 5G and the need for more advanced chips for smartphones and IoT (Internet-of-Things) devices. Also, Microsoft (MSFT) and Sony (SNE) are launching gaming consoles this quarter, which should surely benefit AMD.
AMD was recently in the news as it is in advanced talks to buy its rival Xilinx (XLNX). This is on the heels of Nvidia (NVDA) acquiring Arm Holdings. A combined AMD and XLNX would be valued at approximately $30 billion. XLNX creates programmable chips used in data centers for artificial intelligence and telecommunications. This should enhance AMD’s capabilities in those areas.
While AMD has an elevated trailing P/E of 159.94, its valuation is justified by its growth projections next year of 26.9% for revenues and 178.9% for earnings. The stock is rated a “Buy” by our POWR Ratings system. It holds a grade of “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade. Those are three out of the four components that make up the POWR Ratings. The stock is also ranked #17 in the Semiconductor & Wireless Chip industry.
AMD is expected to report earnings next week on October 27th after the market closes.
The Boston Beer Company (SAM)
SAM, known for its Samuel Adams line of beers, is a U.S. high-end malt beverages market leader with strong positions in craft beer, hard cider, and hard seltzer. In addition to Samuel Adams, the company sells products through three other brands, including Angry Orchard, Twisted Tea, and Truly Hard Seltzer.
The company saw growth in the second quarter on the back of strong shipments and depletions growth. Depletions growth is a term in the beer industry that refers to the rate at which beer, which has already been shipped from a producer to a distributor, leaves the distributor’s warehouse to end-users. The second quarter was the ninth straight quarter of double-digit depletion growth, backed by strength in Truly Hard Seltzer, Twisted Tea, and the Dogfish Head brands.
As anyone who has been on the beach or at restaurants over the summer can attest to, hard seltzer is having its moment right now. SAM is expected to invest heavily in the Truly brand as the competition in hard seltzer heats up. The company expects shipments and depletions to grow 27% and 35%, respectively, this year.
SAM has a current P/E of 84.92, which is high but appropriate based on its growth estimates. The company is expected to grow sales by 29% next year. It is also expected to grow earnings by 35.8% and EBITDA by 30% over the same time period. The stock is rated a “Strong Buy” in our POWR ratings system, with a grade of “A” in Trade Grade, Buy & Hold Grade, and Peer Grade. SAM is also ranked #2 out of 29 stocks in the Beverages industry.
Keep an eye out on Thursday as the firm is expected to report its latest financial results after the market closes.
Quidel Corporation (QDEL)
QDEL is engaged in the development, manufacturing, and marketing of rapid diagnostic testing solutions. The company has greatly benefited from the pandemic as it manufactures diagnostics healthcare products that have been used to test for the virus. The firm, which was founded in 1979, is a leader in diagnostic equipment.
Testing has been one of the essential aspects of battling the virus. As a second wave is just starting to hit the U.S. and Europe, QDEL should continue to see strong sales. Plus, when a vaccine is approved, many Americans have stated that they won’t take it, at least initially, which would mean further testing for the foreseeable future. Plus, no one is sure how long any post-infection immunity will last. There are now several documented cases of people becoming infected a second time.
QDEL was the first company to get approval from the U.S. Food and Drug Administration (FDA) for a rapid 15-minute coronavirus test. The company has also partnered with professional sports leagues to test players and keep the hopes for full season alive. Management has provided updated guidance, announcing a goal of producing 220 million tests per year by July of 2021.
Like the other two stocks mentioned, QDEL has a somewhat high trailing P/E of 71.70, but its growth estimates are even more impressive than AMD and SAM. Sales are expected to grow 52.6% next year, while earnings are expected to grow 61.1%. The stock is rated a “B” in our POWR Ratings system with a grade of “A” in Trade Grade, and a “B” for Peer Grade and Industry Rank.
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About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. 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. More…
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