A Winning Combination

Low p-e stocks that have reported upside earnings surprises have an increased chance of moving higher. Here are 20 to watch

By Massimo Santicchia

This S&P stock screen was built to combine two investing strategies. One is a "contrarian" approach focusing on stocks with a low price-to-earnings (p-e) ratio. The other: a "momentum" approach -- keying on stocks reporting upside earnings surprises.

Here's why. When stocks with low p-e ratios report positive earnings "surprises," they have more potential for appreciation in the following three, six and even 12 months than those that also report surprises but carry higher p-e multiples.

S&P selected S&P 500 stocks that reported an earnings surprise greater than 20% in the most recent quarter. Of the 37 stocks that made the cut, S&P chose the 20 with the lowest p-e ratios.

Here are the stocks that emerged:

Company Name P/E Ratio Positive Surprise (5)
Albertson's Inc. 16.66 20
Amerada Hess Corp. 8.594 20
Block H & R Inc. 21.671 131.579
Cabletron Systems 10.932 33.333
CMS Energy Corp. 13.892 30
Corning Inc. 27.834 21.429
Devon Energy Corp. 13.441 27.933
Edison International 7.223 25
Engelhard Corp. 14.862 41.463
Entergy Corp. 13.428 29.167
EOG Resources Inc. 18.741 27.885
National Semiconductor 6.415 35
Nucor Corp. 10.301 45.07
Oneok Inc. 18.671 50
Phillips Petroleum Co. 10.213 21.973
PPL Corp. 12.56 35.938
Reebok International Ltd. 23.453 57.143
Sunoco Inc. 9.739 33.898
Visteon Corp. 4.322 21.053
Williams Cos. Inc. 28.377 147.826

Santicchia is a portfolio analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.