Value stocks

5 Highest Value Stocks Based on PEG Ratio

Thanks to the market sell-off that has lasted nearly two years and Omicron’s latest highly contagious variant of COVID-19, which is increasing uncertainty about the global financial outlook, a number of growth stocks have moved to undervalued territory. However, thanks to the massive and continued deployment of vaccines in all countries as well as the gradual easing of the economic fear factor surrounding the pandemic, market observers believe that a strong rebound is to be expected for these actions shot down anytime soon. .

Right now, with many fundamentally great stocks now at their lowest, investors are looking for a suitable investment option. They can currently use value investment capitalize on the long-term potential of these stocks. Here we will discuss the success of five such actions. These include Avis Budget Group SELF, ModivCare Inc. MODV, Lenovo Group Limited LNVGY, Penske Automotive MAP and Atlas Corp. ATCO.

An overview of value investing

When looking for a suitable investment option, value investors with a varied risk appetite are unlikely to consider the price-earnings-growth (PEG) ratio among a number of other popular metrics. such as price/earnings (P/E), price/sales (P/S) or price/book value (P/B).

Indeed, they often find this ratio complicated, given the limitations of calculating a stock’s future earnings growth potential. Benchmarks, such as dividend yield, P/E, or P/B, are most often used to identify stocks that are trading at a discount.

However, these ratios, which do not take into account a stock’s future growth potential, could end up convincing us to invest in discounted stocks simply because of their poor performance. This can often lead to “value traps” – a situation in which these value picks begin to underperform over the long term as the temporary issues, which once drove the stock price down, turn out to be persistent.

In such a case, even if you buy a stock at less than its fair value, you may end up paying more. And here’s the importance of that not-so-popular but crucial measure of value investing, the PEG ratio.

The PEG ratio is defined as: (Price/Earnings)/Earnings growth rate

A low PEG ratio is always better for value investors.

While the P/E alone fails to identify a true stock of value, the PEG helps to find the intrinsic value of a stock.

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 long-term growth rate.

Therefore, investing based on the PEG can prove to be even more rewarding if some other relevant parameters are also taken into consideration.

Here are some of the selection criteria for a winning strategy:

PEG ratio below X Industry median

P/E ratio (using F1) below X Industry median (for more precise evaluation purposes)

Zacks rating 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 history of success.)

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

20-day average volume greater than 50,000 (Substantial trading volume ensures the stock is easily tradable.)

Percentage change of revisions to F1 (4-week) revenue estimates greater than 5% (Upward revisions to estimates add to the optimism, suggesting a new uptrend.)

Value score 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 most upside potential.

Here are five of the 10 actions that qualified the screening:

Avis Budget Group: Based in Parsippany, NJ, Avis Budget Group is one of the leading vehicle rental operators in North America, Europe and Australasia. The company is one of the world’s leading providers of mobility solutions through its three most recognized brands: Avis, Budget and Zipcar. The company has licensees in approximately 175 countries around the world. Avis Budget Group has an impressive long-term historical growth rate of 18.8%. The stock carries a Zacks rank No. 1 and has a value score of B. You can see the full list of today’s Zacks #1 Rank stocks here.

ModivCare Inc.: It is a technology-driven health services company, providing a suite of integrated supportive care solutions for public and private payers and patients. ModivCare provides non-emergency medical transportation services for Medicaid or Medicare-eligible members whose mobility or limited financial resources impede their ability to access needed health care and social services. Besides a reduced PEG and P/E, ModivCare has a Value Score of B and holds a Zacks Rank #1. The company also boasts an impressive long-term historical growth rate of 30.4%.

Lenovo Group Limited: Lenovo is a Fortune Global 500 company serving customers in 180 markets worldwide with $60 billion in revenue. The company develops, manufactures and markets technology products and services. It operates through Intelligent Devices Group and Data Center Group segments. Along with a reduced PEG and P/E, Lenovo holds a Zacks #2 rank and a value score of A.

Penske Automotive: Based in Bloomfield Hills, MI, Penske Automotive operates automotive and commercial truck dealerships in the United States, Canada and Western Europe. Penske Automotive also distributes commercial vehicles, diesel engines, gasoline engines, fuel systems and related parts and services primarily in Australia and New Zealand. The company currently holds a Zacks #2 ranking and a value score of A. The company also has an impressive 20% five-year growth rate.

Atlas Corp.: It is a global asset management company, differentiated by its position as a leading owner and operator, focused on deploying capital to create sustainable shareholder value. Atlas, through its subsidiaries, operates as an independent charterer and manager of container ships. Atlas holds a Zacks No. 1 rank and has a value score of A. The stock also has an impressive long-term expected earnings growth rate of 27.9%.

You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.

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

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance.

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Avis Budget Group, Inc. (CAR): Free Inventory Analysis Report

Penske Automotive Group, Inc. (PAG): Free Inventory Analysis Report

Lenovo Group Ltd. (LNVGY): Free Stock Analysis Report

Atlas Corp. (ATCO): Free Stock Analysis Report

ModivCare Inc. (MODV): Free Stock Analysis Report

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