Investing According to GARP

Growth At a Reasonable Price, that is. Here are 15 stocks that are attractively valued relative to their earnings potential

By David Braverman

For those investors who use the "growth at a reasonable price" (GARP) approach to picking stocks, one important measure to look at is a stock's PEG. What is it? It's a measurement of a stock's price-to-earnings ratio against its estimated five-year EPS growth rate.

Here's an example. If Company X has a p-e of 20, and its earnings are growing at 30% per year, it has a PEG of 0.67. Company Y has a p-e of 10, with earnings growth estimated at 18% per year; its PEG is 0.56. GARP investors would pick Company Y -- the stock with the lower PEG measure -- since it is more attractively valued relative to its earnings potential.

The followng 15 stocks, listed alphabetically, are S&P 500 components and have the lowest PEGs in the index:

ADC Telecom (ADCT )

Advanced Micro (AMD )

Alltel (AT )

Andarko Petroleum (APC )

Apache (APA )

Burlington Resources (BR )

Eaton (ETN )

EOG Resources (EOG )

KB Home (KBH )

Loews Corp. (LTR )

National Semiconductor (NSM )

Occidential Petroleum (OXY )

Oracle (ORCL )

Power One (PWER )

Teradyne (TER )

Braverman is a senior investment officer for Standard & Poor's

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