5 Low PEG Stocks Value Investors Will Love

Investment has never been as daring a task as it is today, with the world stock market shaken by multiple factors – economic or otherwise. So, the biggest challenge is how to keep our portfolio safe and lucrative.

If we have to go by Warren Buffet’s formula, it is value investing that can offer the succor we need during tough times. Value investing has especially proven its worth during times of market crash or global downturn.

However, failing to choose the right value strategy, which gives investors a precise idea about the intrinsic value of a stock, may lead to traps. In other words, it could lead to a situation when these picks start to underperform, as those temporary problems which once drove the share price down may turn out to be endemic. To avoid such value traps, Buffet has advised investors to keep a focus on the earnings growth potential of a stock. And here comes the significance of an out in the cold value investing metric, the PEG ratio.

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 finding the intrinsic value 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 a 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 also 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

Zacks Rank of 1 or 2: Whether good market conditions or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) 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 20,000: 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 or 2 offer the best upside potential.

Here are 5 of the 10 stocks that qualified the screening:

AngloGold Ashanti Ltd. (NYSE:AU) : This gold mining and exploration company currently carries a Zacks Rank #1 and a Value Style Score ‘B’. The company also has an impressive expected five-year growth rate of 27.6%.

Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) : This popular name in the field of basic and environmental sanitation services in Sao Paolo currently holds a Zacks Rank #1 and a Value Style score ‘A’. The company registered an earnings surprise of 20% in its last reported quarter.

Nucor Corporation (NYSE:NUE) : NUE is a steel and steel products manufacturer in the U.S. This Zacks Rank #2 and Value Style Score ‘B’ company also has an impressive expected five-year growth rate of 27.6%.

Seagate Technology plc (NASDAQ:STX) : This worldwide provider of electronic data storage products can be an impressive value investment pick with its Zacks Rank #2 and Value Style Score ‘A’.

Steel Dynamics Inc. (NASDAQ:STLD) : This manufacturer and seller of steel products in the U.S. holds a Zacks Rank #2 and a Value Style Score ‘A’. The company has delivered an earnings surprise of 3.57% in its last reported quarter with a trailing 12-month earnings beat of 12.29%.

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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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