5 Low PEG Stocks That Are A Good Fit For Your Value Portfolio

Value investing is conventionally believed to be one of the finest ways of investing in any kind of market situation. And this is especially proven during times of market crash or global downturn. After all, Buffet had once said, “The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”

In today’s world of economic turbulence, such moments are no longer rare, leading to the enormous popularity of value investing. However, things are not that simple as they seem when it’s the investors’ turn to pick the right value stocks utilizing the right strategy from ‘n’ number of ratios and metrics available in the market.

Failing to choose the right strategy that will give investors the perfect idea of the intrinsic value of a stock may lead to “value traps” -- a situation when these picks start to underperform over the long run as those temporary problems which once drove the share price down may turn out to be persistent.

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 importance of a not-so-popular 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 to find the intrinsic value of a stock.

Unfortunately, this ratio is often neglected due to investors’ limitation to calculate the future earnings growth rate of a stock.

There are some drawbacks of 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
(For more accurate valuation purpose.)

Zacks Rank of 1(Strong Buy) or 2 (Buy) (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 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 or 2 offer the best upside potential.

Here are 5 of the 13 stocks that qualified the screening:

United Natural Foods, Inc. (NASDAQ:UNFI) : UNFI, which along with its subsidiaries, serves a wide variety of retail formats in the U.S. holds a Zacks Rank #1 and has a Value Style Score ‘B’. The company has delivered an earnings surprise of more than 15.2% in its last reported quarter and is beaming with prospects.

Smith & Wesson Holding Corporation (NASDAQ:SWHC) : This renowned manufacturer of firearms and a provider of quality accessory products currently carries a Zacks Rank #1 and has a Value Style Score ‘B’. The company with an impressive expected five-year growth rate of 10%, registered an earnings surprise of 22% in its last reported quarter with a trailing 12-month earnings beat of more than 34.14%.

Nippon Telegraph and Telephone Corporation (NYSE:NTT) : This popular name in the field of mobile voice related services, IP/packet communications services, telecommunication equipment, system integration, and other telecommunications-related services currently holds a Zacks Rank #1 and has a Value Style score ‘A’. The company also has an impressive expected five-year growth rate of 20.6%.

Plantronics, Inc. (NYSE:PLT) : PLT is a global leader in audio communications for businesses and consumers. This Zacks Rank #2 and Value Style Score ‘A’ company also registered an earnings surprise of 20.51% with a trailing four-quarter average beat of 14.89%.

Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) : This basic environmental sanitation services provider and supplier of treated water and sewage services can be an impressive value investment pick with its Zacks Rank #2 and Value Style Score ‘A’. Apart from a discounted PEG and P/E, the stock also has an impressive expected five-year growth rate of 29.7%

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.

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.

Zacks Restaurant Recommendations: Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »