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5 PEG Stocks at Bargain Prices for Value Investors
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With the value investing strategy gaining popularity with every passing day, investors are often at their wits end about which metric to choose. With the strategy focusing on stocks which are currently undervalued, investors find it easier to follow simple metrics like Price-to-Earnings (P/E) or Price-to-Sales (P/S). However, these ratios have often been observed to give us a misleading picture of the intrinsic value of a stock.
More specifically, what if there is a dearth of catalysts to propel growth even though the stock is cheap? In such a case, if you buy a stock at less than its fair value, you might still end up paying more. To avoid such value traps, one of the world’s greatest investors Warren Buffet has advised investors to focus on the earnings growth potential of a stock. This is where the not-so-popular value investing metric, the PEG ratio, steps in.
The PEG ratio is defined as: (Price/ Earnings)/Earnings Growth Rate
A lower PEG ratio is always better for value investors.
While P/E alone fails to identify a true value stock, PEG helps find the intrinsic value of a stock.
Unfortunately, this ratio is often neglected due to investors’ limitation to calculate the future earnings growth rate of a stock.
There are some drawbacks to using the PEG ratio though. It doesn’t consider the very common situation of changing growth rates such as the forecast of the first three years at a very high growth followed by a sustainable but lower growth rate in the long term.
Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are taken into consideration.
Here are the screening criteria for a winning strategy:
PEG Ratio less than X Industry Median
(P/E Ratio (using F1) less than X Industry Median (For more accurate valuation purpose).
Zacks Rank of 1 (Strong Buy) or 2 (Buy) (whether market conditions are good or bad, stocks with a Zacks Rank #1 or 2 have a proven history of success).
Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity).
Average 20 Day Volume greater than 50,000: (A substantial trading volume ensures that the stock is easily tradable).
Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: (Upward estimate revisions add to the optimism, suggesting further bullishness).
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best upside potential.
ArcelorMittal (MT - Free Report) : Based in Luxembourg, ArcelorMittal is the world’s leading steel and mining company. With a presence in more than 60 countries, it operates a balanced portfolio of cost competitive steel plants across both developed and developing nations. It is the leader in all the main sectors – automotive, household appliances, packaging and construction. With a Zacks Rank #2 and a Value Style Score of ‘A’, this stock can prove to be a solid value investment pick at present. It also has an impressive expected growth rate of 56.8% for the current fiscal.
NextEra Energy Partners, LP (NEP - Free Report) : This Florida-based growth-oriented limited partnership formed by NextEra Energy acquires, manages and owns contracted clean energy projects with stable, long-term cash flows. The company also owns interests in wind and solar projects in North America as well as natural gas infrastructure assets in Texas. Apart from a discounted PEG and P/E, the stock holds a Zacks Rank #2 and a Value Style Score of ‘A’. You can see the complete list of today's Zacks #1 Rank stocks here.
The Chemours Company (CC - Free Report) : This popular name in the field of titanium technologies, fluoroproducts and chemical solutions provides market-defining products, application expertise and chemistry-based innovation to a wide range of industries. The stock currently flaunts a Zacks Rank #2 and has a Value Style Score of ‘A’. The company also has an impressive growth rate of 137.7% for the current year.
ON Semiconductor Corporation (ON - Free Report) : The company is focused on energy efficient innovation. It is a leading supplier of semiconductor-based solutions, offering a comprehensive portfolio of energy efficient, power management, analog, sensors, logic, timing, connectivity, discrete, SoC and custom devices. ON Semiconductor can also be an impressive value investment pick with a Zacks Rank #1 and Value Style Score 'A'. Apart from a discounted PEG and P/E, the stock also has an impressive expected growth rate of 57.3% for the current fiscal.
Louisiana-Pacific Corporation (LPX - Free Report) : The company manufactures and sells building products, primarily for use in new home construction, repair and remodeling, and outdoor structures, as well as light industrial and commercial construction. This Zacks Rank #1 stock also holds a Value Style Score of ‘B’ and hence can be a great value investment pick at the moment.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations:Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 PEG Stocks at Bargain Prices for Value Investors
With the value investing strategy gaining popularity with every passing day, investors are often at their wits end about which metric to choose. With the strategy focusing on stocks which are currently undervalued, investors find it easier to follow simple metrics like Price-to-Earnings (P/E) or Price-to-Sales (P/S). However, these ratios have often been observed to give us a misleading picture of the intrinsic value of a stock.
More specifically, what if there is a dearth of catalysts to propel growth even though the stock is cheap? In such a case, if you buy a stock at less than its fair value, you might still end up paying more. To avoid such value traps, one of the world’s greatest investors Warren Buffet has advised investors to focus on the earnings growth potential of a stock. This is where the not-so-popular value investing metric, the PEG ratio, steps in.
The PEG ratio is defined as: (Price/ Earnings)/Earnings Growth Rate
A lower PEG ratio is always better for value investors.
While P/E alone fails to identify a true value stock, PEG helps find the intrinsic value of a stock.
Unfortunately, this ratio is often neglected due to investors’ limitation to calculate the future earnings growth rate of a stock.
There are some drawbacks to using the PEG ratio though. It doesn’t consider the very common situation of changing growth rates such as the forecast of the first three years at a very high growth followed by a sustainable but lower growth rate in the long term.
Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are taken into consideration.
Here are the screening criteria for a winning strategy:
PEG Ratio less than X Industry Median
(P/E Ratio (using F1) less than X Industry Median
(For more accurate valuation purpose).
Zacks Rank of 1 (Strong Buy) or 2 (Buy) (whether market conditions are good or bad, stocks with a Zacks Rank #1 or 2 have a proven history of success).
Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity).
Average 20 Day Volume greater than 50,000: (A substantial trading volume ensures that the stock is easily tradable).
Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: (Upward estimate revisions add to the optimism, suggesting further bullishness).
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best upside potential.
ArcelorMittal (MT - Free Report) : Based in Luxembourg, ArcelorMittal is the world’s leading steel and mining company. With a presence in more than 60 countries, it operates a balanced portfolio of cost competitive steel plants across both developed and developing nations. It is the leader in all the main sectors – automotive, household appliances, packaging and construction. With a Zacks Rank #2 and a Value Style Score of ‘A’, this stock can prove to be a solid value investment pick at present. It also has an impressive expected growth rate of 56.8% for the current fiscal.
NextEra Energy Partners, LP (NEP - Free Report) : This Florida-based growth-oriented limited partnership formed by NextEra Energy acquires, manages and owns contracted clean energy projects with stable, long-term cash flows. The company also owns interests in wind and solar projects in North America as well as natural gas infrastructure assets in Texas. Apart from a discounted PEG and P/E, the stock holds a Zacks Rank #2 and a Value Style Score of ‘A’. You can see the complete list of today's Zacks #1 Rank stocks here.
The Chemours Company (CC - Free Report) : This popular name in the field of titanium technologies, fluoroproducts and chemical solutions provides market-defining products, application expertise and chemistry-based innovation to a wide range of industries. The stock currently flaunts a Zacks Rank #2 and has a Value Style Score of ‘A’. The company also has an impressive growth rate of 137.7% for the current year.
ON Semiconductor Corporation (ON - Free Report) : The company is focused on energy efficient innovation. It is a leading supplier of semiconductor-based solutions, offering a comprehensive portfolio of energy efficient, power management, analog, sensors, logic, timing, connectivity, discrete, SoC and custom devices. ON Semiconductor can also be an impressive value investment pick with a Zacks Rank #1 and Value Style Score 'A'. Apart from a discounted PEG and P/E, the stock also has an impressive expected growth rate of 57.3% for the current fiscal.
Louisiana-Pacific Corporation (LPX - Free Report) : The company manufactures and sells building products, primarily for use in new home construction, repair and remodeling, and outdoor structures, as well as light industrial and commercial construction. This Zacks Rank #1 stock also holds a Value Style Score of ‘B’ and hence can be a great value investment pick at the moment.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
Zacks Restaurant Recommendations:Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »