The 'Cheap' Pick of Each Litter
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:
|Constellation Brands||STZ||Consumer Staples|
|Humana Inc.||HUM||Health Care|
|Jabil Circuit||JBL||Information Technology|
|Sprint Nextel||S||Telecom Services|
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.