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4 Low-PEG Value Stocks That Could Deliver Market-Beating Returns
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Key Takeaways
Fox, Flex, Suzano and Garrett Motion meet key low-PEG and value criteria for strong upside potential.
Flex shows a five-year historical growth rate of 35.1%, while Suzano's long-term expected growth is 52%.
Fox and Garrett Motion both hold a Value Score of A and demonstrate robust historical growth performance.
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 — Fox Corporation (FOX - Free Report) , Flex Ltd. (FLEX - Free Report) , Suzano S.A. (SUZ - Free Report) and Garrett Motion Inc. (GTX - 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 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:
Fox: It is a U.S.-based news, sports, and entertainment company operating through Cable Network Programming, Television, Credible and The FOX Studio Lot segments. Fox produces and distributes content across cable, broadcast, streaming (including Tubi) and digital platforms, and also creates content for third parties.
FOX currently has a Zacks Rank #1 and a Value Score of A. It also has an impressive five-year historical growth rate of 12.3%.
Flex: Singapore-based Flex, formerly Flextronics, operates across 30 countries providing advanced manufacturing solutions spanning design, engineering, prototyping, fulfilment and circular economy services, supported by capabilities in software, robotics, AI, automation, simulation and digital twins. The company reports revenues through two segments, Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS).
Flex currently has a Zacks Rank #1 and a Value Score of B. FLEX also has an impressive five-year historical growth rate of 35.1%.
Suzano: This is a Brazilian pulp and paper manufacturer operating globally across two segments, Pulp, and Paper & Consumer Goods, producing coated and uncoated papers, paperboard, tissue, and market and fluff pulp. The company also engages in biofuel development, port operations, biotechnology and nanocellulose R&D, power generation, logistics, lignin research and commercialization of pulp, paper, and related materials.
Apart from a discounted PEG and P/E, SUZ currently has a Zacks Rank #1 and a Value Score of A. Suzano has a long-term expected growth rate of 52%.
Garrett Motion: The company designs and manufactures turbocharging, air and fluid compression and high-speed electric motor technologies for OEMs and distributors worldwide. Its advanced solutions serve light and commercial vehicles as well as industrial applications.
GTX has a Zacks Rank #1 and a Value Score of A. Garrett Motion also has an impressive five-year expected growth rate of 23.1%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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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4 Low-PEG Value Stocks That Could Deliver Market-Beating Returns
Key Takeaways
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 — Fox Corporation (FOX - Free Report) , Flex Ltd. (FLEX - Free Report) , Suzano S.A. (SUZ - Free Report) and Garrett Motion Inc. (GTX - 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 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:
Fox: It is a U.S.-based news, sports, and entertainment company operating through Cable Network Programming, Television, Credible and The FOX Studio Lot segments. Fox produces and distributes content across cable, broadcast, streaming (including Tubi) and digital platforms, and also creates content for third parties.
FOX currently has a Zacks Rank #1 and a Value Score of A. It also has an impressive five-year historical growth rate of 12.3%.
Flex: Singapore-based Flex, formerly Flextronics, operates across 30 countries providing advanced manufacturing solutions spanning design, engineering, prototyping, fulfilment and circular economy services, supported by capabilities in software, robotics, AI, automation, simulation and digital twins. The company reports revenues through two segments, Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS).
Flex currently has a Zacks Rank #1 and a Value Score of B. FLEX also has an impressive five-year historical growth rate of 35.1%.
Suzano: This is a Brazilian pulp and paper manufacturer operating globally across two segments, Pulp, and Paper & Consumer Goods, producing coated and uncoated papers, paperboard, tissue, and market and fluff pulp. The company also engages in biofuel development, port operations, biotechnology and nanocellulose R&D, power generation, logistics, lignin research and commercialization of pulp, paper, and related materials.
Apart from a discounted PEG and P/E, SUZ currently has a Zacks Rank #1 and a Value Score of A. Suzano has a long-term expected growth rate of 52%.
Garrett Motion: The company designs and manufactures turbocharging, air and fluid compression and high-speed electric motor technologies for OEMs and distributors worldwide. Its advanced solutions serve light and commercial vehicles as well as industrial applications.
GTX has a Zacks Rank #1 and a Value Score of A. Garrett Motion also has an impressive five-year expected growth rate of 23.1%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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