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Crush the Market With These 4 PEG-Efficient Value Stocks
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Key Takeaways
CCL, HMY, DLTR and GEF were selected using PEG-based screens and additional value-focused criteria.
CCL boasts a 28.5% five-year growth rate, while HMY shows a long-term historical rate of 73.4%.
GEF has a 9.9% expected growth rate and a Value Score of A, meeting all the screening benchmarks.
At a time when volatility strikes almost every day, investors often rely on value investing rather than other options, such as growth or momentum. As soon as other investors start selling their stocks at a cheaper rate in times of market uncertainty, value investors take this as an opportunity to pick good stocks at a discounted price.
Several stocks that have surged significantly in the recent past have shown the overwhelming success of this pure-play investment strategy. Here, we discuss four such stocks — Carnival Corporation (CCL - Free Report) , Harmony Gold Mining (HMY - Free Report) , Dollar Tree (DLTR - Free Report) and Greif, Inc. (GEF - Free Report) .
However, this apparently simple value investment technique has some drawbacks and not understanding the strategy properly may often lead to “value traps.” In such a situation, these value picks start to underperform over the long run as the temporary problems, which once drove the share price down, turn out to be persistent.
There are many value investment yardsticks, such as dividend yield, P/E or P/B, which are simple and can single out whether a stock is trading at a discount.
However, for investors looking to escape such value traps, it is also vital to determine where the stock would be headed in the next 12 to 24 months. Warren Buffett advises these investors to focus on the earnings growth potential of a stock. This is where lies the importance of a not-so-popular value investing metric, the PEG ratio.
PEG Ratio at a Glance
The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate
A low 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.
There are some drawbacks to using the PEG ratio. 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 rate, followed by a sustainable but lower growth rate over the long term.
Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.
Here are some of 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 purposes)
Zacks Rank #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.
Our PEG-Driven Picks
Here are four stocks that qualified the screening:
Carnival: Headquartered in Miami, FL, Carnival operates as a cruise and vacation company. As a single economic entity, Carnival Corporation & Carnival plc forms the largest cruise operator in the world. It is the world’s leading leisure travel firm and carries nearly half of the global cruise guests. The company operates in North America, Australia, Europe and Asia.
Carnival currently has a Zacks Rank #2 and a Value Score of A. CCL also has an impressive five-year historical growth rate of 28.5%.
Harmony Gold: The company is based in Randfontein, South Africa. The company conducts underground and surface gold mining. It is also engaged in related activities such as exploration, processing, smelting and refining. Harmony Gold has nine underground operations located in the Witwatersrand Basin.
Apart from a discounted PEG and P/E, Harmony Gold currently has a Zacks Rank #1 and a Value Score of B. HMY has a long-term historical growth rate of 73.4%.
Dollar Tree: Headquartered in Chesapeake, VA, Dollar Tree is an operator of discount variety stores offering merchandise and other assortments. Its stores successfully operate in major metropolitan areas, mid-sized cities and small towns. The company offers a wide range of quality everyday general merchandise in many categories, including housewares, seasonal goods, candy and food, toys, health and beauty care, gifts, party goods, stationery, books, personal accessories, and other consumer items.
Dollar Tree has a Zacks Rank #2 and a Value Score of B. DLTR also has an impressive five-year expected growth rate of 6.7%.
Greif: Delaware, OH-based Greif is a leading global producer of industrial packaging products and services with manufacturing facilities located in over 35 countries. The company offers a wide range of rigid industrial packaging products. It manufactures containerboard and corrugated products for markets such as packaging, automotive, food and building products in North America.
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.
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Crush the Market With These 4 PEG-Efficient Value Stocks
Key Takeaways
At a time when volatility strikes almost every day, investors often rely on value investing rather than other options, such as growth or momentum. As soon as other investors start selling their stocks at a cheaper rate in times of market uncertainty, value investors take this as an opportunity to pick good stocks at a discounted price.
Several stocks that have surged significantly in the recent past have shown the overwhelming success of this pure-play investment strategy. Here, we discuss four such stocks — Carnival Corporation (CCL - Free Report) , Harmony Gold Mining (HMY - Free Report) , Dollar Tree (DLTR - Free Report) and Greif, Inc. (GEF - Free Report) .
However, this apparently simple value investment technique has some drawbacks and not understanding the strategy properly may often lead to “value traps.” In such a situation, these value picks start to underperform over the long run as the temporary problems, which once drove the share price down, turn out to be persistent.
There are many value investment yardsticks, such as dividend yield, P/E or P/B, which are simple and can single out whether a stock is trading at a discount.
However, for investors looking to escape such value traps, it is also vital to determine where the stock would be headed in the next 12 to 24 months. Warren Buffett advises these investors to focus on the earnings growth potential of a stock. This is where lies the importance of a not-so-popular value investing metric, the PEG ratio.
PEG Ratio at a Glance
The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate
A low 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.
There are some drawbacks to using the PEG ratio. 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 rate, followed by a sustainable but lower growth rate over the long term.
Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.
Here are some of 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 purposes)
Zacks Rank #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.
Our PEG-Driven Picks
Here are four stocks that qualified the screening:
Carnival: Headquartered in Miami, FL, Carnival operates as a cruise and vacation company. As a single economic entity, Carnival Corporation & Carnival plc forms the largest cruise operator in the world. It is the world’s leading leisure travel firm and carries nearly half of the global cruise guests. The company operates in North America, Australia, Europe and Asia.
Carnival currently has a Zacks Rank #2 and a Value Score of A. CCL also has an impressive five-year historical growth rate of 28.5%.
Harmony Gold: The company is based in Randfontein, South Africa. The company conducts underground and surface gold mining. It is also engaged in related activities such as exploration, processing, smelting and refining. Harmony Gold has nine underground operations located in the Witwatersrand Basin.
Apart from a discounted PEG and P/E, Harmony Gold currently has a Zacks Rank #1 and a Value Score of B. HMY has a long-term historical growth rate of 73.4%.
Dollar Tree: Headquartered in Chesapeake, VA, Dollar Tree is an operator of discount variety stores offering merchandise and other assortments. Its stores successfully operate in major metropolitan areas, mid-sized cities and small towns. The company offers a wide range of quality everyday general merchandise in many categories, including housewares, seasonal goods, candy and food, toys, health and beauty care, gifts, party goods, stationery, books, personal accessories, and other consumer items.
Dollar Tree has a Zacks Rank #2 and a Value Score of B. DLTR also has an impressive five-year expected growth rate of 6.7%.
Greif: Delaware, OH-based Greif is a leading global producer of industrial packaging products and services with manufacturing facilities located in over 35 countries. The company offers a wide range of rigid industrial packaging products. It manufactures containerboard and corrugated products for markets such as packaging, automotive, food and building products in North America.
Greif has an impressive long-term expected earnings growth rate of 9.9%. GEF currently has a Value Score of A and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report