S&P's latest list finds eight names with below-market p-e ratios and above-average dividend yields—and strong buy recommendations
From Standard & Poor's Equity ResearchThis week's screen takes a back-to-basics approach. With the market (as measured by the S&P 500) down 37% in 2008 and down another 5.88% in the first 11 trading days of the new year, you might be buying the argument that the sale of the century is taking place on Wall Street.
Sure, stocks are cheaper—for the most part—than they were a year ago, but it stands to reason that some of them sold off for good reason. To find the potential bargains, we constructed a screen based on the precepts of famed value investor, Benjamin Graham.
We went to the fundamentals for this screen, identifying only those stocks with a price-earnings ratio lower than that of the market as a whole, a price-to-sales ratio lower than that of the market as a whole, and a dividend yield higher than the market as a whole. These three simple ratios have been studied extensively, and most researchers have found they can be good predictors of future stock price outperformance.
Of course, what's worked in the past may not work this time. But value managers have expressed interest in bargain-hunting in today's markets, so it behooves a savvy individual investor to find the stocks the pros may be buying. For our purposes, we also screened for stocks with our highest ranking of five stars (strong buy), to ensure our analysts like the stocks' prospects for superior outperformance in the coming 12 months.
Edison International EIX