Many would-be growth stocks out there are trading at valuations that aren't nearly as high as they were just a year or two ago. That suggests there are some deals out there for investors who know what to look for. Even if growth stocks don't fully recover this year, buying shares of growing businesses and holding them for at least three to five years can help set you up for life.
A couple of stocks that should be on your radar right now are AbbVie (ABBV 1.06%) and Microsoft (MSFT -1.27%). Let's take a closer look at these two "cheap" growth stocks.
1. AbbVie
AbbVie is an underrated healthcare stock that's trading at just 20 times its earnings. That's below the healthcare average of 22. Investors are likely discounting the stock right now over concerns about the patent cliff approaching for its top-selling anti-inflammatory drug Humira. The drug will lose some patent protection as early as this year.
It's not a small void to fill (Humira's sales were around $21 billion in 2021) but the company has some promising drugs in its portfolio that management believes, combined, can make up for Humira's loss in revenue. AbbVie even recently upgraded the guidance for the two immunology drugs in question -- Skyrizi and Rinvoq. Now, it estimates the two drugs will combine for up to $17.5 billion in sales by 2025, compared with its previous estimate of $15 billion. And by 2027, their combined annual sales could rise higher than $21 billion.
The improved guidance suggests things are going better than the company expected, and it could be a sign that the drugs could reach a higher peak in the future. And outside of those drugs, the company also has more than a dozen phase 3 trials ongoing that could lead to even more growth in AbbVie's future.
That growth the business will generate in the future will go great with the attractive dividend yield of 3.9% that AbbVie offers, which is well above the S&P 500 average of 1.7%. As a bonus, the stock is also a Dividend King and has an excellent track record for increasing its payouts, meaning if you buy and hold the stock you'll likely see your dividend income rise over the years. With a manageable payout ratio of 74% and more growth in its future, AbbVie makes for a solid income-generating investment.
2. Microsoft
Tech giant Microsoft is another promising growth stock that looks like it could be a steal of a deal. Not only has this been a solid market-beating investment to own over the years, but it is also trading at a price-to-earnings multiple of less than 26, which is well below its five-year average of 35.
Like AbbVie, Microsoft is full of growth potential. It has a fantastic core of products, including Azure, Dynamics 365, and Office 365, all of which generated year-over-year growth of more than 10% in Microsoft's most recent earnings report (for the period ending Sept. 30). In addition to that, the company is rumored to be in talks to invest $10 billion in artificial intelligence company OpenAI, which owns ChatGPT, as Microsoft looks to bolster its Bing search engine.
Between that, its pending acquisition of gaming company Activision Blizzard, and Microsoft sitting on more than $107 billion in cash and short-term investments, there are many growth opportunities that the business can tap into in the future.
Buying Microsoft after its 29% decline in price last year could be a great move for long-term investors as this is a stock that's likely to continue beating the markets in the long haul. It also offers a modest yield of 1.1% that can give investors some incentive to buy and hold as it has been raising its dividend for the past two decades.
