Growth stocks have taken it on the chin throughout 2022 as interest rates have moved relentlessly higher. Even the old FAANG stocks that led the rally for most of 2021 have not been immune.
The highest inflation levels in 40 years and a slowing global economy have recently resulted in poor results and/or guidance from litany of tech icons such as Microsoft (MSFT) , Amazon (AZMN) , Alphabet (GOOG) and especially Meta Platforms (META) . Some of these tech icons are even starting to lay off employees, which I think will be a major development in 2023 across the economy as it tips into recession.
Meanwhile, defensive sectors like healthcare have held up well with value stocks like Gilead Sciences (GILD) and Merck & Co. (MRK) have even delivered healthy gains for their shareholders in 2022 to date. This is a rarity in what has been putrid year for investors. I believe this divergence between the performance in growth and value stocks is likely to continue at least until the Fed 'pivots'.
In today's column, I will highlight two value names that are even cheaper than they appear.
Let's start with an obscure name, CompoSecure (CMPO) . This company is the largest provider of premium metal payment cards, having produced the first ever in 2003 (Amex Centurion). It also launched a card (Arculus) for digital asset transactions in 2021.
CompoSecure derives most of its top line from the design and manufacture of these premium metal payment cards, which are essentially a marketing gimmick to confer prestige on their holders. They are currently issued on Visa (V) , Mastercard (MA) , American Express (AXP) , and China Union Pay payment networks. Once more of a novelty, these cards have become increasingly popular with end users.
With the environment in the crypto markets extremely uncertain as exchanges freeze or limit withdrawals and brokers file for bankruptcy, CompoSecure's partners have been impacted, which is hindering the Arculus ramp. However, its main premium card business is just fine.
The company has a market cap of approximately $400 million. The company generated free cash flow of $47.5 million in the first half of this year. The stock trades at five times expected FY2022 earnings and just over one times revenues, which should be up 40% this year.
Next up is Exelixis (EXEL) . This midcap oncology stock is trading at the bottom of a trading range it has been stuck in for four years now, which makes this a better stock to trade than hold. It has been one of my favorite covered call candidates at these levels for years now as well. The company is consistently delivering revenue growth in the low teens thanks to its blockbuster drug CABOMETYX, which is now approved for six different indications in the U.S.
The equity has a market cap of approximately $5.2 billion and trades for around 15 times next year's projected earnings. However, the company has over $2 billion of net cash on its balance sheet. Equating for that, EXEL goes for nine times forward earnings.
In addition, Exelixis will spend approximately $875 million on R&D efforts this year to advance several early candidates in its pipeline and move CABOMETYX forward to garnering new approvals for additional oncology indications. If leadership chose to cut R&D expenses, the company would be massively profitable. I think Exelixis either uses its cash hoard to make some strategic acquisitions or is bought out itself in 2023... for what it is worth.