5 Beaten-Down Growth Stocks Trading Like Value Plays as Cash Chases Mega-Caps

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The S&P 500 recently sat just 2.5% below its all-time high. Look past the index, though, and the picture gets uglier. Roughly 40% of its members were trading below their 50-day moving averages, and about 1 in 3 had already slipped into a bear market.

That split explains why so many portfolios lag in what looks like a strong market. Gains have pooled in a handful of mega-caps such as NVIDIA (NASDAQ: NVDA) and Amazon.com (NASDAQ: AMZN). Many of the high-growth names investors loved a year ago sit 20% to 30% below their highs, or worse.

By one growth strategist's count, some of those laggards now trade at price-to-earnings (P/E) ratios under 20 while growing revenue 30% to 40% a year. When growth gets priced like value, the real question isn't whether the businesses work. It's whether the market has simply stopped paying attention.

Beaten-Down Growth Stocks Turn Into Value Plays as Money Crowds Into Mega-Caps

Matt McCall, Head Innovations Strategist at Monument Traders Alliance, frames the disconnect as a money-flow problem, not a fundamentals problem. Only so much investable capital exists, and lately it has crowded into companies the market views as pure AI plays.

Biotech shows the pattern. Breakthroughs have accelerated for years while stocks have lagged because money has gone to AI. The next leg, in McCall's view, could rotate from mega-caps toward the mid- and small-cap companies driving AI's next phase.

His record gives that patience weight. Over roughly 20 years, more than 60 of his picks have gained at least 10-fold, by his count. At the March 2009 market bottom, his eight-stock "Andrew Jackson portfolio" included two future bankruptcies, General Motors (NYSE: GM) and Eastman Kodak (NYSE: KODK), alongside Advanced Micro Devices (NASDAQ: AMD) at about $2. None of his big winners went straight up. Each survived steep pullbacks along the way.

Semiconductor Testing Offers a Low-Cost Path to Robotics and Quantum Computing

Two of the five picks share a playbook: buy a profitable chip-testing business and get an emerging megatrend almost free.

Teradyne (NASDAQ: TER), the largest of the group at roughly $50 billion, is known for semiconductor test equipment. It also runs two robotics divisions, including collaborative robots, or cobots, like the automated arms on factory floors. McCall treats it as his blue-chip robotics holding.

The growth is hard to ignore. Per McCall, estimates call for about 130% earnings growth this year and roughly 30% annually after that, with revenue up 61%. Robotics is growing quickly off a small base. The stock has climbed over 100% in the last 12 months but pulled back, partly because big beats are already expected.

Watch whether robotics grows large enough for the market to value it on its own.

FormFactor (NASDAQ: FORM), at about $8 billion, applies the same logic to quantum computing. It tests chips at cryogenic temperatures, and two of the three main quantum approaches need extreme cold to work. Whether IonQ (NYSE: IONQ), Rigetti Computing (NASDAQ: RGTI), D-Wave Quantum (NASDAQ: QBTS) or an unknown private player wins, the testing still has to happen.

Breakthrough claims from Quantinuum (NASDAQ: QNT) and from Google parent Alphabet (NASDAQ: GOOGL) keep the theme alive, though real use cases may not arrive until around 2030 on McCall's timeline. Meanwhile, Quantum is still a small slice of revenue, so the stock hasn't traded in lockstep with the rest of the industry.

Cancer Screening and Drone Warfare Offer High-Risk, High-Reward Catalysts

Grail (NASDAQ: GRAL) is the binary bet.

Its Galleri blood test screens for more than 50 cancers, potentially as early as stage zero, and an FDA advisory committee recommended it in September. Approval looks likely in early 2027 in McCall's view, with Medicare coverage the bigger prize, since the test targets people over 50.

The stock more than doubled in a couple of months on that hope, after losing nearly half its value in a single week within the past year. At roughly $5 billion in market value, a move to $20 billion would be a 4x, and a buyout by a giant like Johnson & Johnson (NYSE: JNJ) is plausible, per McCall. A regulatory stumble is the obvious risk.

Kratos Defense & Security Solutions (NASDAQ: KTOS) sits at the opposite end of the sentiment cycle, about 70% below its peak by McCall's estimate. The $7.5 billion company builds unmanned aircraft that fall between small drones and fighter jets, competing with Lockheed Martin (NYSE: LMT) and RTX (NYSE: RTX).

Drone stocks like Red Cat Holdings (NASDAQ: RCAT) and Ondas Holdings (NASDAQ: ONDS) surged and slumped together, and four drone ETFs launching at once looked like a classic short-term top. With proposals to lift U.S. defense spending from about $1 trillion to $1.5 trillion and Kratos already holding government contracts, a return to fair value alone could mean a double, in McCall's view.

He prefers spreading drone exposure across three or four stocks rather than buying an ETF.

AI Infrastructure Spending Looks More Like 1995 Than 1999

Fabrinet (NYSE: FN), a roughly $11 billion company, supplies the photonics and optics that move data faster inside data centers. It's down about 25% over the past year as investors debate an AI bubble and the circular financing behind the buildout.

The parallel McCall draws is 1995, not 1999. Skeptics thought the internet had peaked, yet the S&P 500 roughly tripled through 1999, even after Alan Greenspan's 1996 "irrational exuberance" warning. Cisco Systems (NASDAQ: CSCO) built the networks and became one of the era's biggest winners.

Fabrinet plays a similar picks-and-shovels role today, and without that infrastructure, AI stalls.

Discounted Prices on Intact Growth Stories Reward Patience Over Timing

Teradyne, FormFactor, Grail, Kratos, and Fabrinet each ride a long-running shift, from robotics and quantum computing to early cancer detection, autonomous defense and data center buildouts. Each has been marked down while its underlying story held. The stories haven't broken. The prices have.

None of this depends on calling a bottom, which McCall freely admits nobody can do. It does depend on execution—Teradyne sustaining its earnings pace, Grail clearing regulators, Kratos winning drone dollars, FormFactor's quantum work scaling and AI spending holding up for Fabrinet.

The risk is that a regulatory miss, a data center slowdown or a deeper risk-off move keeps these names under pressure longer. The upside is that money rotating out of crowded mega-caps could find smaller, cheaper growth stories fast.

Expect volatility either way. Stay focused on earnings delivery and catalyst milestones, because that's what moves high-growth stocks out of the bargain bin.

For the AI names McCall's team says to avoid, plus the growth stocks positioned for the next wave, get Matt McCall's McCall Innovation Report and its Great AI Shock research.

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