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 — DaVita (DVA Quick QuoteDVA - Free Report) , Antero Resources (AR Quick QuoteAR - Free Report) , PBF Energy (PBF Quick QuotePBF - Free Report) and Popular (BPOP Quick QuoteBPOP - 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:

DaVita: Denver, CO-headquartered DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end-stage renal disease (ESRD). The company operates kidney dialysis centers and provides related medical services primarily in dialysis centers and in contracted hospitals across the United States. Its services include outpatient dialysis services, hospital inpatient dialysis services and ancillary services such as ESRD laboratory services and disease management services.

DaVita currently has a Zacks Rank #1 and a Value Score of A. DVA also has an impressive five-year expected growth rate of 20.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources: Denver, CO-based Antero Resources is an independent explorer, primarily engaged in the acquisition and development of natural gas, natural gas liquids and oil resources in the Appalachian Basin. It is one of the fast-growing natural gas producers in the United States. The company focuses on unconventional reservoirs. It holds around 542,000 net acres of oil and gas properties in the Appalachian Basin of West Virginia and Ohio. Antero Resources was established in 2002.

Apart from a discounted PEG and P/E, Antero Resources currently has a Zacks Rank #1 and a Value Score of B. AR has a long-term historical growth rate of 49.4%.

PBF Energy: Based in New Jersey, PBF Energy is a leading refiner of crude. Through five oil refineries and associated infrastructure in the United States, the company provides end products that comprise heating oil, transportation fuels, lubricants and many related products. The refineries can collectively process 1,000,000 barrels of crude every day.

PBF Energy has a Zacks Rank #1 and a Value Score of B. PBF also has an impressive five-year expected growth rate of 39.%.

Popular: The company 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.

BPOP currently has a Zacks Rank #2 and a Value Score of B. Popular also has an impressive five-year expected growth rate of 13.2%.