Markets & Finance

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

From Standard & Poor's Equity ResearchLast 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.

Kaye, a chartered financial analyst, is an analyst for Standard Poor's Portfolio Services. He is the author of The Standard Poor's Guide to the Perfect Portfolio: Five Steps to Allocate Your Assets and Ensure a Lifetime of Wealth.

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