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Get Four
|  | MARCH 18, 2005
 STOCK SCREENS Playing the P-E Angle S&P goes hunting for 5 STAR names with low price-earnings ratios. Among the crop: Beazer Homes and P&G As of mid-March, Standard & Poor's equity analysts has assigned S&P's top investment ranking -- 5 STARS, or strong buy -- to 113 companies. Stocks with that ranking are expected to post a total return exceeding that of the overall S&P 500 index by a wide margin over a 12 month period, with shares rising in price on an absolute basis. Within that select list, what are the stocks that are most attractively priced? One approach to take: Search for those issues with the lowest price-to-earnings (p-e) ratio. That is simply a company's stock's price divided by the estimated annual earnings for the current fiscal year for each share of common stock outstanding. If a company is expected to earn $2 a share and its stock price is $20, the p-e ratio is 10. RANGE ROVER. Why is p-e important? Well, while it isn't the only valuation measure an investor should consider -- and it should always be examined in the context of other factors -- it is a useful starting point. In essence, it tells investors when the market is willing to pay for anticipated future earnings. Stocks with low relative p-e ratios, and solid fundamentals, may have more room to move if the market's expectation for future growth improves over time (what is often called "multiple expansion"). The "solid fundamentals" part, in S&P's view, is reflected in the top S&P STARS ranking. On to this week's screen. We decided to mine the 5-STARS list for those issues with the lowest p-e ratios. But since different sectors tend to have different p-e ranges -- those for financials, for example, are typically lower than for technology companies -- we wanted to make sure that our list was representative of the broader market. So we looked for the stocks with the lowest p-e ratios in each of the 10 sectors within the S&P 500, as classified under the Global Industry Classification Standard, or GICS. Below are the 20 names that turned up. The p-e ratios of the stocks in this group average 14.6 (vs. the average of 18.0 for the S&P 1500), and range from 8.1 to 20.6.
De Guia is an analyst for Standard & Poor's Portfolio Advisors  All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
BW MALL
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