If you buy a growth stock struggling with short-term issues, the payoff could be significant down the road. Businesses will always encounter challenges, which means there can always be good buying opportunities for investors, especially if they are otherwise solid companies. The key is to sift through the noise and the short-term concerns about the business and remain focused on the long-term potential. That's where the great deals in the market reside.
Three stocks that look cheap right now and that can make for excellent growth stocks to hold for the long haul are AbbVie (NYSE: ABBV), Super Micro Computer (NASDAQ: SMCI), and Walt Disney (NYSE: DIS). Here's a closer look at why they might be worth investing in right now.
1. AbbVie
Drugmaker AbbVie has a solid and diverse business. Over the years, acquisitions helped it expand its operations even further. It acquired Botox maker Allergan in 2020 and it bought ImmunoGen, which makes antibody-drug conjugates, which are more targeted cancer treatments that could potentially lead to better patient outcomes.
With a ton of free cash flow coming in through its operations, AbbVie remains in an excellent position to continue investing in its future growth. In the trailing 12 months, it generated $17.8 billion in free cash flow. And in each of the past three years, AbbVie's free cash has exceeded $20 billion.
The company is struggling to grow of late because top-selling drug Humira lost patent protection recently, but AbbVie is optimistic for the long haul. Management projects that beginning next year and through to the end of the decade, AbbVie will be able to achieve an annual revenue growth rate in the high single digits. With some promising growth prospects and the stock trading at a forward price-to-earnings multiple of just 16, this has the potential to be a bargain buy for investors who are willing to buy and hold.
2. Super Micro Computer
At the beginning of the year, there was so much excitement surrounding Super Micro Computer, also known as Supermicro, given its prospects for growth due to artificial intelligence (AI). The company is seeing strong demand for its servers and other IT infrastructure as sales more than doubled from the same period in the previous year.
But excitement has turned into worry as shares of Supermicro fell by nearly 50% in just six months. Between a short-seller report and concerns about thinning gross margins and high valuations in tech, there are multiple explanations for this recent wave of bearishness.
There is admittedly some risk with Supermicro stock, but if it can improve on its margins, this has the potential to be a bargain buy. Given the continued growth opportunities in AI and the stock trading at a forward P/E of less than 15, Supermicro may generate some fantastic returns in the future.
3. Walt Disney
Disney is a top brand that hasn't been doing well this year. The stock is up just 5% since January as investors are bearish on news of sluggish demand at the company's theme parks. Oddly, the positive news has been around its direct-to-consumer streaming business, which turned a modest operating profit ($47 million) in the company's most recent quarter. But that's still a small part of its overall operations. In the big picture, the company's total revenue is the concern for investors; through the nine months ending June 29, the top line has risen by just 2% year over year.
Investors are concerned that demand may decline further as economic conditions worsen and travel trends slow down. Disney has also been laying off staff as it scales back on its content offerings, focusing on quality rather than quantity, but the good news is that can help its streaming business produce even better results.
Disney is a top brand, and while economic conditions affect its near-term outlook, there are plenty of reasons to remain optimistic for the long haul, especially if it can continue to post a profit from its streaming operations, which is a struggle for many media companies. At less than 18 times its expected future earnings, Disney is another potentially underrated growth stock to buy today.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie and Walt Disney. The Motley Fool has a disclosure policy.
