S&P's latest screen finds some names that score well under valuation and profitability measures—and cost $10 or less
From Standard & Poor's Equity ResearchWhat can you get for $10 these days? Well, a sawbuck won't get you into a big-city movie theater. It won't even begin to fill the tank on your SUV. But maybe, just maybe, it can fetch you a share of an attractive stock. Interested? We thought so.
There's an inherent appeal to buying something for a low price, and stocks are no exception. A modest share price has advantages. The standard unit for stock transactions is a round lot, or 100 shares. Any order that can't be broken up into round lots is called an odd lot, and can lead to extra fees.
Of course, low-priced stocks aren't necessarily a good value. So it's incumbent on investors to assess the fundamentals of of the "cheapies" before pouncing. That said, let's go hunting in the low-price bin.
In this week's screen, we searched for stocks priced between $5 and $10 that scored well in key categories.
PEGs and Profits
Our first step was to apply a quantitative valuation screen: Standard & Poor's Fair Value Model. The model calculates a stock's weekly Fair Value—the price at which it should trade at current market levels—based on fundamental data such as corporate earnings and growth potential, price-to-book value, return on equity, and current yield relative to the S&P 500-stock index. We set our filter to catch those issues with a Fair Value ranking of 5, which indicates that they are significantly undervalued vs. the entire universe of stocks in the Fair Value model.
We then added a fundamental valuation metric: the p-e-to-growth (PEG) ratio. To get a PEG ratio, divide a stock's price-earnings ratio by its year-over-year earnings growth rate. A lower PEG indicates a better value—essentially this means you would be paying less for each unit of earnings growth. If you're a real bargain hunter, look for a PEG under 1.0. For our purposes, we looked for a PEG between 0 and 1.
To narrow our output further, and to find names with solid profitability, we added another requirement: The names on the list had to have a net profit margin—after-tax profits as a percentage of sales—of greater than 10%.
The screen turned up four names:
Advanced Semiconductor (ASX)
Charles & Colvard (CTHR)
Chipmos Technologies (IMOS)
Streamline Health Solutions (STRM)