I've Spotted 2 Growth-Stock Bargains Amid Inflation and Economic Uncertainty

The overall market rose last week, even as we have inflationary and growth concerns.

The January consumer price index and producer price index reports showed inflation remains stubbornly stuck at above the central bank’s 2% target. This probably puts any further cuts to the Fed Funds rate on hold for the time being. In addition, January retail sales fell much more than expected late in the week -- another sign that economic growth is somewhat tepid and likely weakening. In addition, we are starting to see fourth-quarter results from home builders and housing-related companies hit the wires. They have not been impressive to this point. Tuesday, Tri Pointe Homes, Inc. TPH posted its fourth quarter numbers that beat both top- and bottom-line expectations, but the home builder also saw its order backlog plunge. The stock was off 10% in trading yesterday.

Housing activity makes up 15% to 18% of U.S. GDP. The consumer obviously accounts for a much larger percentage of the economy. Both seem under pressure. And outside of tech and AI related concerns, it is becoming difficult to find much earnings growth across the economy. It is hard to find growth stocks priced at reasonable valuations in the current market. But it is not impossible, either. Here are two:

First is Harrow, Inc. HROW, which I recently added back into my portfolio. The stock has dropped some 40% since its third quarter numbers did not meet the consensus back in mid-November. That said, this ophthalmic pharmaceutical company did deliver nearly 45% year-over-year revenue growth during the quarter. Harrow should also benefit from the relaunch of Triesence, a preservative-free corticosteroid, in the quarters ahead. The company should swing to a profit in fiscal 2025 on better than 45% sales growth and is already producing operational cash flow. Harrow also has a solid balance sheet and its stock trades for less than four times expected fiscal 2025 sales.

Regional bank KeyCorp KEY is another one. I just opened a position in KEY. Scotiabank took a near 15% equity stake in KeyCorp last summer. The new capital allowed the company to jettison roughly 20% of its bond portfolio that was sporting unrealized losses due to rapid rise of interest rates in 2022 and 2023. That moved clear the decks a bit and will boost net interest income going forward.

The bank seems to be doing a good job of managing risk as its provisions for credit losses dropped notably in the fourth quarter. The bank also has less than 15% exposure to commercial real estate in its loan book, one of the lowest exposures among the regional banks. In addition, this sector could benefit from a lighter regulatory touch from the new administration. After making $1.16 a share in earnings in fiscal 2024, the current analyst firm consensus has earnings rising to nearly $1.50 a share this year and $1.75 in fiscal 2026. The stock trades at 12-times forward earnings. The shares also sport a just over 4.5% dividend yield, making the equity a solid growth and income play.

At the time of publication, Jensen was long HROW and KEY