When I was first learning to invest, I would get really frustrated when I would look to invest in companies that had growth potential but were way too expensive. I would either invest in the right stocks at the wrong time or just pick run-of-the-mill stocks that would lag behind the leaders. I have found that there are still quality growth stocks out there that are not currently overvalued. I have been carefully searching for high-quality companies with good balance sheets, a high growth rate over the past three years, and that are trading at a reasonable price/earnings multiple. While you should always do your own research before investing, here are five stocks that interest me:
- Baidu (BIDU): Baidu's recently reported quarter was not horrible, yet analysts have set the bar so high because of recent good results that this quarter was seen as a minor disappointment. I see this as a chance to buy a premier Chinese Internet stock at a discounted price. It is worth noting that with a forward P/E of a little more than 20, this stock is relatively cheap with year-over-year growth at 58%. Companies with this kind of growth are not easy to come by. Baidu is one of them and should be considered.
- Netgear (NTGR): Netgear is benefiting right now from a strong computer networking market. The company has been increasing revenues quarter after quarter and growing at a healthy rate. Its growth has really been picking up lately. Netgear is trading at a forward P/E of 10.69. This is very inexpensive for a solid company.
- Finish Line (FINL): Finish Line, a seller of athletic apparel, has been benefiting from a resurgence of athletics from Under Armour and Nike. Despite an increase in profits this last quarter, the stock has dipped recently to sell at 11.8 times forward earnings. Investors seemed to be disappointed in the earnings guidance that was provided by the company and put the stock on sale. It is a great bargain right now for a growing retailer.
- Apple (AAPL): It is hard to believe that the most valuable company in the world is able to be included on this list. This is a monster growth company (one of the greatest in history) that is trading currently at a forward P/E of 11.5, which by recently reported quarters might be based on earnings numbers that are way too low. This company, even at $600, is a screaming buy. I am looking forward to seeing what the final 2012 fiscal year number turns out to be. It could turn out to be closer to $50 per share than the $46 that is forecast. Don't let the bears scare you out of buying what could be one of the greatest growth stories of our time. No matter what analysts say, this stock is still way too cheap. You can read my full Apple analysis here.
- Broadcom (BRCM): Not only Apple is benefiting from the home run of the iPhone. Broadcom, one of Apple's suppliers, is doing just that and trading at the same discounted forward P/E. It is hard to imagine, but the iPhone is not done growing. China just released the iPhone 4S on Jan. 13, and riots outside the store in Beijing caused Apple to temporarily halt sales for safety reasons. These phones are in high demand in China with lots of room to grow. I like investing directly in Apple better because of the margins and growth, but if you are looking for a stock with growth potential and a lower price per share, Broadcom is worth a look.
If you can find a jumping-in point on a growth stock that is trading at a relatively low valuation, then you are set up for a nice run in the long term. These stocks are not necessarily a recommendation, but a starting point for you to do your own research and see if these are going to be a good investment for you.