At a time when volatility strikes every second day, investors often rely on value investing rather than other options like 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 - Itron Inc. (ITRI Quick QuoteITRI - Free Report) , Teleflex (TFX Quick QuoteTFX - Free Report) , Popular, Inc. (BPOP Quick QuoteBPOP - Free Report) and PHINIA Inc. (PHIN Quick QuotePHIN - 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 of the 12 stocks that qualified the screening:

Itron: Headquartered in Liberty Lake, WA, Itron is a technology and services company and one of the leading global suppliers of a wide range of standard, advanced and smart meters and meter communication systems, including networks and communication modules, software, devices, sensors, data analytics and services to the utility and municipal sectors.

Itron currently has a Zacks Rank #2 and a Value Score of B. It also has an impressive five-year expected growth rate of 30%.

Teleflex: It is a global provider of medical technology products. Teleflex primarily designs, develops, manufactures and supplies single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications. The company markets and sells its products to hospitals and healthcare providers worldwide through a combination of direct sales force and distributors.

Teleflex currently has a Zacks Rank #2 and a Value Score of A. TFX also has an impressive five-year historical growth rate of 5.8%.

Popular:  This is a full-service financial services provider with operations in Puerto Rico, the U.S. mainland and the U.S. and British Virgin Islands. Popular offers a comprehensive suite of banking and financial services, including retail and commercial banking, auto and equipment leasing and financing, mortgage loans, insurance, investment banking, and broker-dealer services.

Apart from a discounted PEG and P/E, BPOP currently has a Zacks Rank #2 and a Value Score of A. Popular has a long-term expected growth rate of 17%.

PHINIA: It develops and manufactures integrated components and systems through two segments: Fuel Systems and Aftermarket. The Fuel Systems segment provides fuel injection systems, delivery modules, sensors and software that boost efficiency and cut emissions in traditional and hybrid vehicles. The Aftermarket segment sells starters, alternators, remanufactured products, maintenance tools, test equipment and diagnostics solutions to OEMs and service customers.

PHINIA has a Zacks Rank #1 and a Value Score of A. PHIN also has an impressive five-year expected growth rate of 24.7%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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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.

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