3 Incredibly Undervalued Growth Stocks to Buy Before They Heat Up

Stocks to buy

The search for undervalued growth stocks is on, with the stock market seeing nice upside so far to kick off 2023. While not much in terms of the macroeconomic environment has changed, there are reasons for improved optimism among investors. Indeed, the declines seen in many sectors last year could pave the way for outsized gains over the medium-to-long term. That is, for investors who decide that the bottom is near for companies with multiples that have contracted significantly.

The list of growth stocks that have seen their valuations dip into value territory is relatively long. There are plenty of tech companies now trading in what I would view as distressed territory. However, outside of tech, there are plenty of other growth-at-a-reasonable-price options worth considering as well.

Yes, interest rates will likely continue to rise from here. No one really knows how long the Federal Reserve will keep rates at these elevated levels, either. But for long-term investors seeking decent returns over a five- or 10-year time horizon, now may be a great time to start considering beaten-down stocks.

Here are three such growth stocks I think are worth diving into right now.

Royal Bank of Canada (RY)

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One of the more intriguing (and overlooked) companies I would put in the growth stock bucket and the undervalued bucket is Royal Bank of Canada (NYSE:RY).

Sure, Royal Bank isn’t as exciting as many tech companies or other high-growth stocks in more attractive sectors. This Canadian bank, with operations in the U.S. and many other nations, is about as mundane as any other financials stock in the market right now.

That said, this well-diversified global bank is one of the world’s top options for investors seeking multinational exposure. Thus, from a diversification standpoint, there’s a lot to like about the value that RY stock provides.

From a growth standpoint, Royal Bank is a standout in the banking sector. This lender has produced a compounded annual growth rate of 8.3% in terms of earnings per share growth over the past 20 years. When adding in the company’s dividend yield — currently just under 4% — investors receive some impressive upside potential from simply being patient.

Meta Platforms (META)

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The largest social media company in the world, Meta Platforms (NASDAQ:META) has seen its reputation shift over the past year. Headed by CEO Mark Zuckerberg, this company has promised a big turn toward the metaverse. What this has meant in terms of Meta’s strategic focus (and significant financial investment) is noteworthy. Indeed, in recent quarters, Meta’s Reality Labs division has been losing billions of dollars.

Accordingly, many investors may simply want to steer clear of META stock. Other concerns arising from Apple’s (NASDAQ:AAPL) iOS data-sharing policies haven’t helped, putting the company’s profitability outlook in peril.

That said, the recent impressive decline seen in META stock provides investors with a great opportunity to pick up one of the best growth stocks at an incredible valuation. Currently, META stock trades at around 13 times trailing earnings. For a growth stock that has shown consistent bottom-line growth in recent years, this is an incredible valuation worth considering.

Although headwinds do remain, I think now is the time to start considering backing up the truck on META stock here.

Star Bulk Carriers (SBLK)

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Another less-conventional company to make this list of undervalued growth stocks is Star Bulk Carriers (NASDAQ:SBLK).

Based in Greece, Star Bulk is one of the global shipping operators that has been thrown into the spotlight of late. As shipping costs have risen, so has the company’s top-line growth profile. Indeed, with a fleet of 128 dry bulk carriers with a carrying capacity ranging from 52,247 to 209,537 deadweight tonnage (dwt), the company is one of the leaders in its oft-forgotten sector.

Star Bulk will remain necessary for global supply chains in order for the world’s bulk commodities to be shipped. Thus, the company has a defensive profile worth considering on this basis. However, a number of analysts have pointed out that Star Bulk’s net income growth of 79% over the past five years is remarkable, as is its return on equity metric. For those looking for a bottom-line grower, this company also fits the bill.

Trading at around 2.4 times trailing earnings, there are few growth stocks with this kind of a multiple trading at depressed levels right now. In my view, this is certainly one of today’s better undervalued growth stocks.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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