Value investors follow Benjamin Graham’s investment philosophy and look for equities that offer a reasonable margin of safety. While this strategy can help value investors avoid high-growth stocks that crash, they also tend to miss out on stocks like Nvidia (NASDAQ:NVDA).
Some value investors accept this trade-off and look for less volatile assets. However, some value stocks offer a good combination of a low valuation and promising growth opportunities. Investors looking for growth at a reasonable price may want to consider these top picks.
Axcelis Technologies (ACLS)
Axcelis Technologies (NASDAQ:ACLS) provides technology that enables semiconductor giants to produce more efficient chips. That puts the company in several high-growth industries like artificial intelligence, which can raise the stock price considerably.
Shares have gained more than 500% over the past five years, but the rally has largely fizzled out since August 2023. The stock now trades at a 19 P/E ratio despite posting impressive growth rates in the third quarter of 2023.
Year-over-year revenue and earnings growth came in at 27.6% and 63.7%, respectively. Those growth rates helped the company reach a 22.5% net profit margin during the quarter. The low 19 P/E ratio makes little sense since the company has a vast $1.2 billion backlog. The backlog is higher than the company’s target of $1.1 billion in revenue for 2023.
Axcelis Technologies is likely undervalued since fewer investors know about it. Shares only have a $4 billion market cap and have been down by 25% over the past six months. Financial performance doesn’t give any justifiable reason for the dramatic drop.
Direct Digital Holdings (DRCT)
Direct Digital Holdings (NASDAQ:DRCT) falls in the same category as Axcelis Technologies. Not enough investors know about this stock. DRCT has a $165 million market cap and a forward P/E ratio of 15.
Shares had previously remained roughly flat, with some ups and downs since its 2022 IPO. However, the storyline changed as DRCT stock shot up by over 300% since November. More investors gradually learning about the stock could have contributed to the gains.
However, the company’s financials likely had a bigger impact. The programmatic advertising company generated 129% year-over-year revenue growth while more than quadrupling its net income in the third quarter of 2023. Full-year guidance implies revenue will more than double at the midpoint.
Direct Digital Holdings has a growing buy-side advertising segment, but the real growth comes from its sell-side advertising division. The company’s Colossus sell-side platform () expanded its revenue by 174% year-over-year.
Sell-side advertising makes up over 86% of the company’s total revenue. Since the big revenue driver is also growing fastest, investors should expect revenue acceleration in the coming quarters.
PayPal (NASDAQ:PYPL) is the largest company on this list, with a $67 billion market cap. The fintech company hasn’t had the best of luck over the past few years. Shares are down by 31% over the past five years as a pandemic rally to over $300/share now feels like a distant memory.
PayPal continues to grow on the top line but didn’t have the best performance for its bottom line in the third quarter of 2023. During that quarter, revenue increased by 8% year-over-year while earnings per share dropped by 19% year-over-year.
CEO Alex Chriss is new to the job and has only held the helm since September 2023. He’ll want to make a big impression and PayPal’s upcoming AI-based products can do just that. Some analysts are skeptical.
It’s too early to gauge how PayPal stock will play out under its new CEO. However, the stock currently offers an 18 P/E ratio. The valuation is low for an iconic brand that has become a household name.
The reasonable valuation leaves room for some upside, but it will take a big change for investors to treat PayPal like a growth stock again.
On this date of publication, Marc Guberti held long positions in ACLS and DRCT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.