This year didn't exactly begin on the right foot, and yet at the beginning of October the S&P 500 sits a healthy 6% higher on a year-to-date basis.
For buy-and-hold investors, the trading action this year has vindicated the strategy of buying high-quality companies and staying put for the long term. Yet quite a few high-quality names have also moved lower for the year, giving long-term investors an opportunity to potentially scoop up great stocks at bargain prices.
What makes some of this year's bargains so enticing is that a few of these high-quality companies are growth stocks. Though the term "growth stock" can be completely arbitrary, I prefer to define a growth stock as a company that has the capacity to grow by 10% or more per year. Growth stocks are operating in an especially friendly environment at the moment, with lending rates remaining near their historic lows. This is giving growth companies the opportunity to reinvest in their business, hire, and acquire for relatively minimal borrowing costs.
After perusing a list of growth stocks that are down more than 10% year-to-date, four stood out as being attractively priced for long-term investors this fall.
Arguably the biggest bargain among growth stocks as we enter October is U.S. drug giant Bristol-Myers Squibb (BMY -0.76%).
Bristol-Myers Squibb shares are down 21% year-to-date, mainly on account of the top-line results from the CheckMate-026 trial, which was examining cancer immunotherapy Opdivo as a monotherapy treatment for patients with previously untreated non-small cell lung cancer (NSCLC) whose tumors had PD-L1 expression of 5% or greater. Cancer immunotherapies have delivered generally stellar clinical results, but Opdivo failed to reach its primary endpoint in the CheckMate-026 study, crushing Bristol-Myers' stock.
However, Wall Street is forgetting two major factors about Opdivo. First, the CheckMate-026 trial examined Opdivo as a monotherapy, and traditionally Opdivo and other immunotherapies have performed better when in combination with existing or developing chemotherapies. Most of Opdivo's ongoing studies are in combination with existing chemotherapies or immunotherapies.
Secondly, Opdivo is still a foundational therapy in second-line NSCLC and second-line renal cell carcinoma, and is being studied in dozens of ongoing trials. In other words, it has plenty of potential to build upon its blockbuster sales.
Investors also shouldn't forget about rapidly growing oral blood-thinning standard of care Eliquis, which was co-developed with Pfizer. Worldwide revenue for Eliquis screamed 78% higher year-over-year to $777 million in the second quarter. On an extrapolated basis Eliquis is on pace for more than $3 billion in annual sales, and still has numerous label indications it could be approved for in the coming years.
With full-year profits expected to more than double between 2015 and 2019, Bristol-Myers' recent drop is the perfect opportunity for you to consider dipping your toes into the water.
Sprouts Farmers Market
If you're looking for super growth outside of the pharmaceutical industry, consider up-and-coming organic supermarket chain Sprouts Farmers Market (SFM 1.12%).
Shares of Sprouts Farmers Market are down 22% year-to-date as we enter October, primarily as a result of lower growth expectations than what Wall Street had forecast. Last month Sprouts lowered its full-year same-store sales forecast to a range of 1.5% to 2.5% from a prior forecast of 3.5% to 4.5%. It also lowered its full-year EPS outlook to a range of $0.83 to $0.86 from $0.96 to $0.98. Sprouts attributed the weaker guidance to a deflationary food environment, which has increased promotional activity on its end.
Though Sprouts' earnings warning was far from a shining moment, there's still a lot to like if you can look past this minor speed bump. The company's ability to rapidly expand is among the top reasons to consider buying into Sprouts and the organic food craze. Sprouts had fewer than 50 stores in 2011, but it ended the second quarter with more than 240 stores in 13 states. With relatively little long-term debt ($282 million), Sprouts has been able to fund its expansion predominantly with its operating cash flow. That's good news for investors worried about buying into a debt-riddled supermarket chain.
Perhaps the bigger story here is the long-term growth potential of the organic food industry. According to the Organic Trade Association, organic food sales hit a record $43.3 billion in 2015, and they've essentially doubled since 2008. In 2015, nearly 5% of all food sold in the U.S. was organic, and this figure could be expected to grow. In other words, Sprouts has every right to believe that its rapid expansion is going to pay off, even if its near-term pricing power isn't as strong as it'd like.
Another way to keep your growth portfolio "running" would be to turn to athletic footwear, apparel, and accessories behemoth Nike (NKE 0.94%).
Despite having great global visibility, Nike is among the worst performers in the Dow Jones Industrial Average in 2016, with its shares lower by 15% year-to-date. The most recent knock against Nike came just days ago when the company reported its fiscal 2017 first-quarter earnings report. While its $9.1 billion in sales, representing 10% year-over-year growth, impressed Wall Street, the company's outlook did not. Worldwide futures orders grew by "just' 7% on a currency-neutral basis, which was below what Wall Street had been forecasting. Some pundits on Wall Street believe Nike could be succumbing to competitive pressures.
However, long-term growth investors are likely to recognize that Nike's long-term growth strategy is still intact. For instance, Nike is still having remarkable success in China and numerous overseas markets, where its brand visibility is still growing. Total China sales grew in Q1 by 21% to top $1 billion on a currency-neutral basis, while western and central European sales improved 10% and 16%, respectively, also in constant currency. After essentially doubling its emerging market sales between 2010 and 2015, Nike is counting on approximately 60% cumulative growth from emerging markets between 2016 and 2020.
Nike should also benefit from the rise of athletic wear, known more commonly as athleisure apparel. As noted by Quartz, the rise of athleisure apparel has been particularly noticeable in the U.S. and China. Specifically, the number of people ages six to 69 in China who exercised at least three times a week rose from 28% in 2007 to 31% by 2014. Active people prefer active apparel, which is probably another reason why Nike's China sales continue to outperform.
Don't forget about Nike's aforementioned brand visibility, either. Interbrand ranked Nike as the 17th-most valuable brand in the world in 2015, with its perceived value increasing by 16% from 2014. As one of the top risers in brand visibility, it seems the company is doing a good job of forging emotional connections with its customers.
With full-year EPS slated to climb from $2.18 in 2016 to a Wall Street consensus of $3.74 by 2020, Nike is a retail brand worth monitoring.
We'll end this list of top growth stocks trading at bargain prices this fall in the same manner we began it: by taking a look at a discounted healthcare stock. In this case I'd suggest checking out biotech blue-chip Celgene (CELG).
Shares of Celgene are down 13% year-to-date, with the beginning-of-the-year rout in biotech stocks partly to blame for its woes. The bigger issue for Celgene was its fiscal 2017 guidance. Though Celgene topped Wall Street's expectations during the first quarter for fiscal 2016, it lowered both its full-year sales and profit forecast for 2017. The catalyst behind the weaker expectations is the slowing sales of cancer drug Abraxane. Abraxane, which treats advanced lung, breast, and pancreatic cancer, has been losing sales to cancer immunotherapies, which are being tested in similar indications.
While investors might be a bit down on Abraxane's somewhat tepid growth prospects, there are plenty of reasons to be excited about Celgene's future.
Organic growth is unquestionably the most exciting aspect of Celgene. Multiple myeloma blockbuster Revlimid appears to be on track to hit approximately $10 billion in sales by the end of the decade thanks to organic growth in existing indications, as well as a half-dozen label expansion opportunities. Oral anti-inflammatory Otezla has numerous label expansion opportunities as well. Even Abraxane could see its growth reignited by being combined with cancer immunotherapies in advanced lung and/or breast cancer.
Collaborations and inorganic growth offer Celgene alternative channels to expand in top- and bottom-line. Celgene's more than 30 working collaborations ensure it spends its money on only the most promising oncology and immunology drugs. Furthermore, it gobbled up Receptos for $7.2 billion last year to get its hands on experimental drug ozanimod. Based on positive trials to date, ozanimod could wind up hitting $4 billion to $6 billion in peak annual sales if approved.
With a PEG ratio that's well below one, Celgene is worth a long look by growth investors.