Launching Undervalued Growth: Asymmetric Investment Ideas
Summary
- Undervalued growth focuses on asymmetrical investment opportunities by finding undervalued growth stocks with breakthrough potential.
- The goal is to broaden the horizon of growth-focused investors, going beyond crowded growth stocks, which are often overvalued.
- Become a member of an interactive investment community from as little as $1 per day.
- The first 10 members are granted a lifetime legacy discount.
Editors' note: This article is meant to introduce the new Marketplace service from Main Street Investor, Undervalued Growth.
Why Invest in Growth?
Growth stocks have historically outperformed value stocks since the market generally favors growing companies and tends to be forward looking. Many of the underlying companies have exciting business models and boast high growth rates through relentless innovation. However, investors often need to pay a hefty price for growth, which is why many growth stocks trade at premium valuations with little room for more upside.
I thus decided to launch Undervalued Growth to help growth investors broaden their horizons, going beyond the narrow list of overcrowded growth stocks. The service focuses on finding asymmetrical investment opportunities that offer explosive breakthrough potential.
By screening thousands of stocks, I look for the most promising growth companies that trade at a significant discount. With over seven years of experience with growth stocks, I aim to help members become better investors while avoiding costly mistakes.
Data by YCharts
As demonstrated above, growth stocks generated nearly twice the return of value stocks within the last few decades. When the broader market goes up, growth stocks usually outperform by a wide margin.
The stock market has a general tendency to go up in the long run, so growth stocks should continue to achieve above-average returns. The goal of the Undervalued Growth portfolio is to capitalize on this volatility while reducing individual risk by diversifying among different industries.
The Problem
Many investors often face the same issue when investing in growth stocks: The given valuations are so inflated that it becomes very difficult to achieve lucrative returns.
Most bubbles in the stock market are the result of irrational enthusiasm around ultra-growing companies in new industries. The notion is that eventually the companies will grow into their given valuations and become profitable once maturity sets in. During the prominent dot.com bubble in 2000, various tech companies were worth billions, despite generating only little revenue and no profits. Most stocks shed more than 90% of their value in the resulting market crash while many others were delisted. This certainly wasn't the last stock market bubble relating to growth stocks, since the market will always be controlled by irrationality.
Today, when looking at broad valuations of high-growth stocks, many companies trade at nauseous valuations that leave little room for more upside. The issue is that most growth investors only concentrate on a small list of innovative growth stocks, which then become substantially overvalued as a result. Most growth investors focus only on a narrow list of popular stocks such as Tesla (TSLA), Square (SQ), Roku (ROKU), and Palantir (PLTR), which have gained tremendous attention through the financial media.
Data by YCharts
Although these companies are revolutionary and grow at unprecedented rates, their given valuations imply years of doubling annual revenue in order to reach a fair valuation level. Moreover, when looking at the historical valuations, most of these companies were trading at significantly lower valuations in past years, meaning that a sizable part of the recent gains can be drawn back to high market enthusiasm.
The Solution
At Undervalued Growth, I aim to provide members with a broader spectrum of growth opportunities to seek asymmetrical investment ideas. In the process of doing so, I screen thousands of stocks to find undervalued growth companies that offer substantial upside potential in the long run. Here, my model portfolio consists of 27 actively managed holdings with new top ideas being regularly added. Other interesting stocks that did not quite make it into the portfolio are listed on my extensive watchlist.
Defining the fair valuation of growth stocks is complex. Most growth stocks are either significantly overvalued or undervalued concerning fundamental prospects. My motto always has been to assume higher valuations for growth stocks at any given time - every high-flying stock has once been undervalued. Yet, probably only a few people had the stock on the radar at that time.
It is, therefore, crucial to look beyond the crowded list of growth stocks that are currently popular.
Three types of undervalued growth stocks are generally sought out. These include:
1. Beaten-down growth stocks: Warren Buffett's famous quote "being fearful when others are greedy" applies not only to value stocks but even more so to growth stocks. At times, growth stocks will trade at a significant discount due to negative investor's sentiment, missed earnings, or widening losses. Frequently, this presents a great opportunity to buy a growing company, which is set to recover.
2. Underfollowed growth stocks: The goal is to be one step ahead of the market to find undervalued growth stocks that the broader market is yet to realize. These stocks are characterized by either having low trading volume or a small market cap. Eventually, the company will grow larger, causing more market participants to realize the potential, resulting in higher trading volume and a higher share price.
3. Recent IPOs: Every week, new companies are listed on the financial markets and some offer great opportunities. However, most times only large and prominent IPOs are gaining investor's attention through the financial media. Sometimes, shares of new companies will fall due to little demand from investors, lock-up expirations, or revealing losses. That might cause recent IPOs to become undervalued and an excellent buying opportunity.
My Background
Having a profound interest in the financial markets, I’ve been investing in growth stocks for over seven years and began covering stocks on Seeking Alpha to express my investment philosophy. I have been actively investing in growth stocks through my personalized portfolio and have experienced every possible market condition.
+7 years experience
3 multi-baggers (+1000%)
Profound Knowledge in Valuations
Creating Successful Portfolio Strategies
My investment career has been a rocky path, with many painful setbacks along the way. Everyone starts at zero. It takes time to acquire knowledge through experience and constant learning. The great thing about the learning curve is that exponential growth sets in after a time and accelerates the learning effect. After finally getting the hang of investing in growth stocks, I’ve been rewarded with various successful investments and have been able to grow my portfolio.
Therefore my goal is to shorten the personal learning curve of like-minded investors and help to prevent my early mistakes.
Who is this for?
If you are a growth investor by heart, this service is a perfect fit for you. Investing in growing and innovative companies is exciting, but frankly, it may not be the right fit for all investors. Since everyone has different goals and a different given risk level, some investors may not find this service beneficial. These may include dividend investors, day traders, and cryptocurrency investors. Instead, these investors will find the most value in the service:
Growth Investors
Long-term Investors
Tech Investors
However, even if your typical investing style differs, expanding your investment horizon by learning about new portfolio strategies, personalized valuation methods, and screening processes can be beneficial.
What's Included in Your Membership
Tools | My free articles | Undervalued Growth |
Analysis | ✓ | ✓ |
Coverage | ✓ | ✓ |
Deep-Dive Analysis | ✓ | |
Model Portfolio | ✓ | |
Watchlist | ✓ | |
Earnings Analysis | ✓ | |
24/7 Support | ✓ | |
Market Outlook | ✓ | |
IPO Outlook | ✓ |
Access to my Model Portfolio: The actively-managed portfolio consists of 27 regularly updated positions.
Access to my regularly updated Watchlist: A real-time tracked watchlist consists of over 50 different holdings. I closely keep track of these stocks to find attractive investment opportunities.
A real-time portfolio performance tracker: Every week, members are updated on the portfolio's performance by directly comparing it to the market's return through a real-time chart.
Timely Buy and Sell Recommendations: Before selling or buying any stock, an announcement will be made with the recommendations and price targets.
Regular updates on upcoming IPOs: New companies join the financial markets every week, and some offer great opportunities. An IPO outlook will be provided weekly.
A Market Outlook: Members will be provided with a macro outlook of the market, including political developments, economic data, and fiscal policy.
24/7 Live Chat: An informative and vibrant live chat in which every member can share ideas, thoughts and ask questions at all times.
An Interactive Community: Every member is part of a fun and interactive investment community that comes together with a shared investment mindset. Ideas, thoughts, and critiques are exchanged so that every member can express themselves.
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This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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