5 best PEG stocks based on a hybrid investment strategy

0

In the equity market, investments must always be carefully hedged in order to overcome uncertainties and limit losses due to external shocks. A question that often arises is whether one should resort to a value strategy that seeks discounted stocks or opt for a growth investment in times of extreme market instability.

The Oracle of Omaha’s investment trail over the past decades and its gradual shift from a pure value investor to a GARP (growth at a reasonable price) investor could give us all the answers.

GARP theory allows for a strategic blend of growth and value investing principles, giving us a hybrid strategy using the best features of both. What GARPers are looking for is whether or not stocks are somewhat undervalued and have strong potential for sustainable growth (Investopedia).

GARP investing prioritizes one of the popular measures of value – the price-to-earnings growth ratio (PEG). Although classified as value investing, this strategy follows the principles of growth investing and value investing.

The PEG ratio is defined as (Price / Profits) / Profit growth rate

It relates the P / E ratio of stocks to their future earnings growth rates.

While the P / E alone gives an idea of ​​which stocks are trading at a haircut, the PEG, while adding the element of growth to it, helps identify stocks with strong future potential.

A lower PEG ratio, preferably less than 1, is always preferable for GARP investors.

Suppose, for example, that if a stock’s P / E ratio is 10 and the expected long-term growth rate is 15%, the company’s PEG will drop to 0.66, a ratio indicating to both undervaluation and potential for future growth.

Unfortunately, this ratio is often overlooked due to the limitations investors have in calculating the rate of growth of a stock’s future earnings.

There are, however, a few drawbacks to using the PEG ratio. It does not take into account the very common situation of changing growth rates, such as forecasting the first three years at a very high growth rate, followed by a sustainable but lower growth rate in the long run.

Therefore, investing based on PEG can be even more rewarding if certain other relevant parameters are also taken into account.

Here are the criteria for selecting a winning strategy:

PEG ratio less than X Industry median

P / E ratio (using F1) less than X Industry median (For a more precise assessment)

Zacks Rank of 1 (strong buy) or 2 (buy) (Whether market conditions are good or bad, stocks with a Zacks # 1 or # 2 ranking have a proven track record of success.)

Market capitalization over $ 1 billion (This helps us focus on companies that have high liquidity.)

Average volume over 20 days greater than 50,000: A substantial trading volume ensures that the stock is easily tradable.

Percent change Revisions to F1 profit estimates (4 weeks) greater than 5%: Upward revisions to estimates add to optimism, suggesting a further uptrend.

Score value less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank # 1, 2 or 3 (Hold), offer the best upside potential.

Here are five of the 14 actions that qualified the screening:

Tesco PLC TSCDY: The company is engaged in retail banking and retail banking business. It offers food products in stores and online; and operates a mobile virtual network. The stock can be an impressive value investment choice with its Zacks # 1 ranking and a value score of A. Along with a discounted PEG and P / E, the stock also has an impressive expected earnings growth rate. long term of 26.6%. You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.

Regeneron Pharmaceuticals, Inc. REGN: It is a biotechnology company focused on the discovery, development and commercialization of treatments targeting serious medical conditions. The company’s portfolio includes nine marketed drugs: Eylea, Dupixent, Praluent, Kevzara, Libtayo, Evkeeza, Inmazeb, Arcalyst and Zaltrap. The stock can also be an impressive value investment choice with its Zacks # 1 ranking and a value score of B. In addition to a discounted PEG and P / E, the stock also has a solid historic growth rate at long term of 28.7%.

Quest Diagnostics Incorporated DGX: It is one of the largest providers of commercial laboratory services in North America. Quest Diagnostics provides laboratory testing services primarily to physicians, hospitals, managed care organizations, employers, government institutions, and other independent clinical laboratories. Along with a discounted PEG and P / E, the stock has a value score of A and holds a Zacks # 2 rank. The stock also posts a profit growth rate of 26.5% for the next five years.

Equinor ASA EQNR: The Company is an energy company, engaged in the exploration, production, transportation, refining and marketing of petroleum and petroleum products, and other forms of energy, as well as other companies in Norway and abroad. The company has experienced an impressive growth rate of 50.8% over the past five years. The stock currently has an A value score and a Zacks # 1 rank.

Marks and Spencer Group plc MAKSY: The company operates various retail stores. It operates through five segments: UK Clothing & Home, UK Food, International, Ocado and All Other. The company offers cold cuts and protein dairy products; produce; ambient and in-store bakery; dessert and frozen meals; and hospitality and “A Food on the Move” products. The stock can be an impressive value investment choice with its Zacks # 2 ranking and a value score of A. Along with a discounted PEG and P / E, the stock also has an impressive expected earnings growth rate. long term of 58.8%.

Get the rest of the actions on the list and start testing this idea and others. All of this can be done with Research Wizard stock picking and backtesting software.

The research assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.

Click here to sign up for a free trial of the Research Assistant today.

Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.

Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance.

Technological IPOs with huge profit potential

Over the past few years, many popular platforms like Uber and Airbnb have finally made their way into the public markets. But the biggest wins have come from lesser-known names.

For example, electric car maker X Peng climbed + 299.4% in just 2 months. Think of it this way …

If you had put $ 5,000 in XPEV when it went public in September 2020, you could have withdrawn $ 19,970 in November.

With record amounts of cash flowing in IPOs and a record stock market, this year’s lineup could be even more lucrative.

View Zacks Tech’s Hottest IPOs Now >>

Click to get this free report

Regeneron Pharmaceuticals, Inc. (REGN): Free Stock Analysis Report

Quest Diagnostics Incorporated (DGX): Free Stock Analysis Report

Marks and Spencer Group PLC (MAKSY): Free Stock Analysis Report

Tesco PLC (TSCDY): Free Stock Analysis Report

Equinor ASA (EQNR): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks investment research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Source link

Leave A Reply

Your email address will not be published.