The market has overlooked three cheap growth stocks

Orbis Global Equity portfolio manager Ben Preston chooses three stocks to invest in

Something crucial tends to be overlooked when markets become fixated on the next big story, like artificial intelligence: quality stocks purchased at reasonable prices frequently yield excellent returns over time. This is especially true during volatile markets. In order to determine a company's long-term value, we concentrate on comprehending its competitive advantages, management teams, track records, cash generation, and risks.

Both share prices and our evaluation of value are always shifting in fast-moving markets due to new information. It is our responsibility to remain flexible, constantly evaluating that gap and concentrating the portfolio on the most alluring prospects. Three instances of that process in action are shown here.

For AI exposure without AI valuations, consider these three growth stocks.

The question of whether AI is a bubble is tempting. That seems like the wrong question. Building AI systems requires massive processing power, and that demand is real, despite the hype surrounding some applications. With just three major players, including Samsung Electronics and SK Hynix, the global memory-chip market is now much more consolidated than it was in the past.

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Start your trial. We are the owners of SK sq\. (Seoul: 402340), a holding company whose main asset is a sizable stake in SK Hynix. The multiple that investors are paying for that exposure is even lower. Due to governance concerns, Korean holding companies have historically traded at significant discounts. However, this dynamic is starting to shift as a result of reforms meant to protect minority shareholders and improve capital allocation.

In addition to providing us with exposure to AI-driven memory demand at a discounted valuation, owning SK sq\. stocks also has the potential to reduce the holding-company discount as governance standards advance. In both situations, share price expectations are still cautious in light of the structural opportunity.

I sold Alphabet (Nasdaq: GOOG) stock last year. The emergence of large-language models seemed to pose a challenge to Google's primary search business. Intrinsic value would decline if that risk turned out to be permanent. However, Gemini made rapid progress, search revenue growth continued, and Alphabet's vertical integrationfrom creating its own chips to running its own cloudgives it cost and performance advantages that are difficult to match.

The core search and advertising engine appears to be fairly valued when we examine the group as a whole. However, investors also receive AI capabilities along with YouTube, Google Cloud, and companies like Waymo. The price might not accurately represent those assets. There are benefits if AI strengthens Alphabet's ecosystem. Even if enthusiasm wanes, core cash flows continue to be strong. The asymmetry is striking.

Contrarians frequently thrive in the healthcare industry due to the high degree of uncertainty and the complexity of the results. Many people consider Genmab (Copenhagen: GMAB) to be a single-product biotech, and later this decade, the patent on its flagship cancer treatment, Darzalex, will expire. As a result, the shares have suffered.

However, a proven platform for producing bispecific antibodies and a pipeline of advanced treatments are being overlooked by the market. In a field where research and development (R&D) expenditures frequently fail to produce sufficient returns, Genmab stands out due to its founder and scientist Dr. Jan van de Winkel's track record of disciplined capital allocation and scientific productivity. The earnings power beyond Genmab's flagship drug could be significantly higher than what the current share price suggests if even a portion of its pipeline is successful.