The 'Cheap' Pick of Each Litter

This week, S&P screens for stocks with the lowest PEG ratio in their sector. Winners include Jabil Circuit and Whirlpool

Last year, the S&P 500 index posted an impressive gain of 13.6% (in price, not including dividends). Year to date through Feb. 12, the 500 is up a bit more than 1.0%. Given this performance, we wonder: Where's the value?

Professional money managers and investors have many different ways of finding value. One of the metrics used is the price-to-earnings growth, or 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 this screen, we selected one stock in each of the 10 sectors of the S&P 500 with the lowest forward PEG ratio. Stocks that have negative forward PEGs were excluded. Here are the 10 we found:

Value Picks by Sector
Company Ticker Sector
Constellation Brands STZ Consumer Staples
Goldman Sachs GS Financials
Humana Inc. HUM Health Care
Jabil Circuit JBL Information Technology
Noble Energy NE Energy
Norfolk Southern NSC Industrials
Phelps Dodge PD Materials
Sprint Nextel S Telecom Services
TXU Corp. TXU Utilities
Whirlpool WHR Consumer Discretionary

S&P Equity Research favors a few names on this list. The ones with S&P's highest ranking of strong buy are banking giant Goldman Sachs and energy company Noble Energy. Other names on the list that S&P favors with a buy ranking are Constellation Brands and Whirlpool. In tech, electronic manufacturing services company Jabil Circuit is also ranked buy.

Keep in mind that sometimes stocks with a low PEG ratio might be cheap for a good reason, and may not be worth buying at this time. Stocks on this list that currently have hold rankings from S&P for various reasons include Humana, Norfolk Southern, Phelps Dodge, Sprint Nextel, and TXU.

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