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The popularity of value investing is on the rise. The success of billionaire value investors like Warren Buffett further underscores the fact. Per a July Motley Fool article, over the past 50 years, his conglomerate Berkshire Hathaway’s stock has yielded a compound annual return of 20.8%. This indicates that an investment of $10,000 in 1965 would be worth $88 million today.
Buffett believes that proper understanding of the “intrinsic value” of a stock may ease out many problems with regard to value investment. According to him, going by the fundamentals of value investing while picking undervalued stocks, investors need to focus on their earnings growth potential.
While yardsticks such as dividend yield, the ratio of price to earnings, sales or book value are the most common value investing matrices that can easily single out stocks trading at a discount, these ratios fail to consider the potential of a stock. PEG is the ratio with the earnings growth component in it.
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 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 good market conditions 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, 2 or 3 (Hold) offer the best upside potential.)
Here are five of the 16 stocks that qualified the screening:
Lantheus Holdings, Inc.(NASDAQ: LNTH– Free Report): The company develops, manufactures, and commercializes diagnostic medical imaging agents and products for the diagnosis and treatment of cardiovascular and other diseases worldwide. Apart from a Zacks Rank #2 and a Value Score of A, the company also has an impressive expected five-year growth rate of 12.5%.
Jazz Pharmaceuticals Public Limited Company(NASDAQ: JAZZ– Free Report): This is a biopharmaceutical company that identifies, develops, and commercializes pharmaceutical products for various medical needs in the United States, Europe, and internationally. The company has an impressive expected five-year growth rate of 17.5%. The stock currently has a Value Score of B and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gray Television, Inc. (NYSE: GTN– Free Report): It is a television broadcast company that owns and operates over 100 television stations and leading digital assets in markets throughout the United States. The company currently holds a Zacks Rank #2 and has a Value Score of A. The company also has an impressive long-term historical growth rate of 24.8%.
Aetna Inc. (NYSE: AET– Free Report): This is one of the leading diversified health care benefits companies, offering a broad range of traditional, voluntary and consumer-directed health insurance products and related services. This stock can also be an impressive value investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 11.1%.
Uniti Group Inc. (NASDAQ: UNIT– Free Report): This is an internally managed real estate investment trust. The company is engaged in the acquisition and construction of mission critical communications infrastructure and is also a provider of wireless infrastructure solutions for the communications industry. Apart from a discounted PEG and P/E, the stock holds a Zacks Rank #1 and has a Value Score of B.
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: In addition 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 »
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks.com featured highlights include Lantheus Holdings, Jazz Pharmaceuticals, Gray Television, Aetna and Uniti Group
For Immediate Release
Chicago, IL – August 31, 2017 - Stocks in this week’s article include Lantheus Holdings, Inc. (NASDAQ: (LNTH - Free Report) – Free Report), Jazz Pharmaceuticals Public Limited Company (NASDAQ: (JAZZ - Free Report) – Free Report), Gray Television, Inc. (NYSE: (GTN - Free Report) – Free Report), Aetna Inc. (NYSE: – Free Report), Uniti Group Inc. (NASDAQ: (UNIT - Free Report) – Free Report).
Screen of the Week of Zacks Investment Research:
5 Excellent Value Stocks Based on Low PEG Ratio
The popularity of value investing is on the rise. The success of billionaire value investors like Warren Buffett further underscores the fact. Per a July Motley Fool article, over the past 50 years, his conglomerate Berkshire Hathaway’s stock has yielded a compound annual return of 20.8%. This indicates that an investment of $10,000 in 1965 would be worth $88 million today.
Buffett believes that proper understanding of the “intrinsic value” of a stock may ease out many problems with regard to value investment. According to him, going by the fundamentals of value investing while picking undervalued stocks, investors need to focus on their earnings growth potential.
While yardsticks such as dividend yield, the ratio of price to earnings, sales or book value are the most common value investing matrices that can easily single out stocks trading at a discount, these ratios fail to consider the potential of a stock. PEG is the ratio with the earnings growth component in it.
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 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 good market conditions 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, 2 or 3 (Hold) offer the best upside potential.)
Here are five of the 16 stocks that qualified the screening:
Lantheus Holdings, Inc.(NASDAQ: LNTH– Free Report): The company develops, manufactures, and commercializes diagnostic medical imaging agents and products for the diagnosis and treatment of cardiovascular and other diseases worldwide. Apart from a Zacks Rank #2 and a Value Score of A, the company also has an impressive expected five-year growth rate of 12.5%.
Jazz Pharmaceuticals Public Limited Company(NASDAQ: JAZZ– Free Report): This is a biopharmaceutical company that identifies, develops, and commercializes pharmaceutical products for various medical needs in the United States, Europe, and internationally. The company has an impressive expected five-year growth rate of 17.5%. The stock currently has a Value Score of B and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gray Television, Inc. (NYSE: GTN– Free Report): It is a television broadcast company that owns and operates over 100 television stations and leading digital assets in markets throughout the United States. The company currently holds a Zacks Rank #2 and has a Value Score of A. The company also has an impressive long-term historical growth rate of 24.8%.
Aetna Inc. (NYSE: AET– Free Report): This is one of the leading diversified health care benefits companies, offering a broad range of traditional, voluntary and consumer-directed health insurance products and related services. This stock can also be an impressive value investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 11.1%.
Uniti Group Inc. (NASDAQ: UNIT– Free Report): This is an internally managed real estate investment trust. The company is engaged in the acquisition and construction of mission critical communications infrastructure and is also a provider of wireless infrastructure solutions for the communications industry. Apart from a discounted PEG and P/E, the stock holds a Zacks Rank #1 and has a Value Score of B.
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: In addition 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 »
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Visit: https://www.zacks.com/performance
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.