Last year, 5 positions were recommended from a screen we created to provide a simple way to seek out stocks that may be considered value investments but have superior earnings growth characteristics. The results/performance of the 5 positions with the highest EPS Growth estimated for next year.
In my book, “The Disciplined Investor,” I discussed PEG ratio as a useful tool to be put in your investment toolkit. And these days, we can all use all of the tools available.
Excerpt from “The Disciplined Investor”:
More than likely, a result that is less than one tells us that we may have a good investment that is undervalued for the time being. On the other hand, a result of more than one is usually a sign that the position is valued higher than it should be. Originally, the PEG Ratio was developed to look at stock statistics in more than one dimension. By adding expected growth to the P/E ratio, it will effectively provide a comparison tool to level the paying field when valuing stocks.
Originally, the PEG Ratio was developed to look at stock statistics in more than one dimension. By adding expected growth to the P/E ratio, it will effectively provide a comparison tool to level the paying field when valuing stocks. Small to Mid-Cap stocks are well suited to utilize the PEG Ratio as the initial screening tool since they usually pay little or no dividends. In effect, is a good tool for some stocks that are usually more difficult to value using traditional methods.
Just as it is true that the ratio is beneficial for smaller stocks, larger stocks should have an additional requirement to help create a more usable and more appropriate valuation tool. By simply adding an overlay of dividend yield along with the earnings, a much better outcome can be crafted for large-cap stocks.
Here is a quick guide to using the PEG ratio as a part of your investing; lower numbers are better:
PEG ratio guide
- 0.50 or less -> Strong buy
- 0.50 to 0.75 -> Buy
- 0.75 to 1.00 -> Hold
- 1.00 to 1.25 -> Possible sell
- 1.25 to 1.75-> Consider shorting
- Over 1.75 -> Short or sell
If you would like to find stocks with a low PEG ratio that spells profit potential, start with a screen that I developed for the MSN Money stock screener.
The criteria are as follows:
- S&P index membership = S&P 500
- PEG ratio below 1
- EPS growth next year >= Annual EPS growth rate
- Forward year P/E <= P/E ratio: current
When you have the results, use the five with the highest EPS growth rate for the next year as potential positions that may be included in your portfolio. Of course, this is only one tool and these stocks are ideas for you to research further.)
A year ago, the group would have been Avon Products (AVP) Murphy Oil (MUR), Molex (MOLX) Monster (MNST) and Transocean (RIG). All five outperformed the S&P 500 during the time period from Sept. 21, 2007, through Sept. 12, 2008.
When I ran the screen again recently, the five positions with the highest estimated EPS growth for the next year are Tyson Foods (TSN) , Consol Energy (CNX), Peabody Energy (BTU) , SanDisk (SNDK) and Legg Mason (LM)
Nore: Sandisk jumped 20% since we implemented these screen results only a few days ago.
Since when do we rely on government to intervene in every case of a failing business? If anyone wonders why we have such a mess on our hands, look no further than our boneheaded government that has obviously forgotten its way. Think of this week’s action within the financial markets is a result, not the cause of our problems.
AIG (AIG) is in a battle for its very existence, Merrill (MER) has been absorbed and Lehman (LEH) is bankrupt. And it is only Tuesday. What’s next?
These days, many people are wondering what our government will do to stop the insanity. Yet, in a capitalistic society that relies on a free market system, we should only look to the government to guide and regulate against fraud and the manipulation of the system. Sometimes known as a laissez-faire philosophy, the government has a role, but it is not to be a business partner and a sugardaddy there to provide a backstop to the bad business practices of the banking system.
Read the full article HERE…
Guest: Chris Jolley, MSN Money tells us about the next generation of the the Microsoft Money product and Andrew explains how the “oil bluff” was just called. It took a hurricane to flush it out and now sub-$100 is looking like a real possibility. What we really want to know is the best way to profit from it… Listen in!
LISTEN TO PODCAST NOW | LISTEN @ ZUNE - @ iTUNES
Chris Jolley is a 12 year – veteran of Microsoft Corporation, having served in a number of business and marketing capacities. Currently, as the business leader for Microsoft’s Financial Products Group, he is responsible for defining and executing the marketing strategy for Microsoft’s consumer finance products, including MSN Money and Microsoft Money software. In this role, Jolley oversees the distribution, sales, public relations, and advertising of the products, as well as industry 
partnership efforts.
During Jolley’s tenure with the Financial Products Group, the MSN Money site has grown from 2 million visitors a month to over 13 million and the Microsoft Money software has evolved to include unprecedented Web integration, marking a new era in automation for online financial activities.
He has been a speaker and moderator at numerous financial conferences, including American Banker’s EBPP and Account Aggregation conferences, Spring Internet World and NetFinance, and has become a recognized industry expert discussing trends and issues in the online finance space.
Jolley joined Microsoft in 1995. Prior to re-joining the financial products group, he focused on partnership marketing, distribution and fulfillment for the MSN Internet Access business, direct marketing for Microsoft’s consumer annuity programs and leading the merchandising teams for MSN Shopping and Windows Live.
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Also in this episode…
Andrew and Chris discuss why Microsoft (MSFT) has discontinued the boxed product of Microsoft Money and how investors can benefit from the new and improved version that assists in the organization of assets/investments. Chris also tells us about some interesting projects that are in the works.
Then, Andrew discusses the potential for sub-$110 oil as we now had a peek at the actual surplus available. This will have a broad effect as Hurricane Gustav shutdown a good chunk of the Gulf production and damages are estimated to be in the $10’s of billions.
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Stock Discussed in this episode: MasterCard (MA), ExxonMobile (XOM), Proshares Ultrashort Oil (DUG), Capital One (COF), U.S. Natural Gas Fund (UNG), Valero (VLO),
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TDI Podcast 72: The Oil Bluff That Backfired (aka-sub$100) [42:22m]:
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My weekly installment of “The Week Ahead” on MSN Money TopStocks:
Is this rally for real? An 8% rise since mid-July has the S&P 500 resting on both the first step of a Fibonacci retracement and its 50-day moving average. Oil has been plummeting and the dollar has been strengthening while financials have seen a nice bounce. Still, the underlying fundamentals for the markets haven’t changed in a way that gives me confidence that we’re out of the woods.
Next week’s earnings will give us a further glimpse into just how bad things are for the consumer. Here is an inside look at some of the more significant positions, along with 3 stocks you may want to research.
Monday, August 18
There is an awful lot of confusion facing investors in the commodity markets. Whether it is corn or wheat or even oil or copper, the extraordinary price movements have been reflected well by the share price of BHP Billiton, which has seen its shares rise to a high of $95.61 and now down to a six-month low of $65.
Read the entire article HERE
The Week Ahead
I am not sure how things can get any worse from this point although the more I learn about the accounting antics within the financial industry and the see wild market volatility, it appears obvious that we are not out of the woods yet - even with the recent dead cat bounce. The main problem stems from the fact that the rules have changed.
Yes, even though many of the core principles that we may use to identify market opportunities are solid and have worked for years, this time it is different. No matter how you choose to look at it, the economy is in shambles and this extreme volatility is clearly reflective of a bear market rather than what may appear to be the return to a bull run.
Last week, earnings came in all over the place and many of the reporting companies missed by a wide margin. In fact, as over half of the S&P 500 has already reported earnings know this quarter, we’re seeing an overall decline of about 18% from a year ago.
(ANF) (BIDU) (AMAT) and others….
Read the Entire Article
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