Markets & Finance

Stocks: Low-PEG Picks


S&P's latest list finds the names with the lowest price-to-earnings growth ratios in each of the 10 S&P sectors

From Standard & Poor's Equity ResearchNot only is it one of Steely Dan's best known songs, but it's also a handy tool for equity investors. We're talking about PEG, shorthand for the price-to-earnings growth ratio, one of the many ways analysts measure a stock's value. As with price-to-earnings (p-e) ratios, lower numbers are better, and show whether the stock is trading at a discount or premium to its potential earnings growth.

The PEG ratio, which has gained popularity in recent years, is a useful tool for investors who employ the "growth at a reasonable price" style. It's one of the best ratios to use in the screening process because it combines both growth and value characteristics. Its components are three of the most important characteristics of determining whether a stock should be purchased: price, earnings, and the growth of the earnings.

To get a PEG ratio, a stock's p-e ratio is divided by its year-over-year earnings growth rate. In general, a stock with a PEG figure below 1.0 is considered attractively valued. It suggests that investors are putting a lower price on the company's stock than they should based on its earnings prospects.

In this week's screen, we searched for stocks trading at the lowest positive PEG ratios in their sector (negative values were excluded). One name for each of the 10 sectors that make up the Standard & Poor's 1500 index is represented:

Sector

Company (Ticker)

Price (11/29/07)

Consumer Discretionary

Live Nation (LYV)

$13.61

Consumer Staples

Nash Finch (NAFC)

$34.55

Energy

Atwood Oceanics (ATW)

$84.08

Financials

Franklin Bank Corp. (FBTX)

$4.22

Health Care

WellCare Health Plans (WCG)

$40.10

Industrials

AirTran Holdings (AAI)

$8.22

Information Technology

Smith Micro Software (SMSI)

$7.74

Materials

Freeport-McMoRan Copper & Gold (FCX)

$96.61

Telecom Services

Telephone & Data Systems (TDS)

$62.78

Utilities

Dynegy (DYN)

$7.59

Kaye, a chartered financial analyst, is an analyst for Standard Poor's Portfolio Services.

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