7 Stocks PEG-ed to Soar

Now is a fantastic time to be a value investor, and it's an even better time to be a growth investor. Super investors such as Buffett, Greenblatt, and Fisher did well buying growing companies for rock-bottom prices. These guys weren't just buying outrageously cheap stocks; they bought growth potential on the cheap.

But how do you find them?
My favorite method for finding cheap growth stocks is to use the PEG ratio. The PEG ratio tells you how much you're paying for expected long-term growth. If a company has a PEG of 1, then for each point of growth, you're paying one times earnings. But if growth expectations are higher than the P/E, the PEG dips below 1 and you're getting more bang for your buck!

Now, the fun part
With that said, here are seven cheap stocks with great growth potential which are also highly rated by our 115,000-plus-member Motley Fool CAPS community.

These stocks have:

  • Expected five-year growth rates above 15%.
  • PE ratios below 20.
  • PEG ratios below 0.7.
  • Top ratings (four or five out of five stars) from our community of investors

 

Estimated 5-Year Annual Growth

PEG Ratio

CAPS Rating

Fools Saying Outperform

American Oriental Bioengineering (NYSE: AOB  )

32%

0.35

****

1682 of 1737

Gushan Environmental Energy (NYSE: GU  )

20.5%

0.55

****

420 of 437

China Fire & Security Group (NYSE: CFSG  )

31.2%

0.45

*****

1630 of 1665

Netgear (NYSE: NTGR  )

15.2%

0.69

*****

2179 of 2240

Transocean (NYSE: RIG  )

21%

0.43

*****

4171 of 4275

National Oilwell Varco (NYSE: NOV  )

23%

0.61

*****

1743 of 1785

Manitowoc (NYSE: MTW  )

32.3%

0.22

*****

1148 of 1171

Data from Yahoo! Finance and Motley Fool CAPS.

While these aren't recommendations, they are a great starting point for future research.

Finding value in growth stocks
So are these beaten-down growers worth a look, or are their growth prospects illusory? Join our Motley Fool CAPS community to get more analysis on the above ideas, create your own list of undervalued growers, or even weigh in with your own expert opinion. Best of all, it's absolutely free. If only the same were true with investing.

ChinaFire & Security Group is a Global Gains selection. American Oriental Bioengineering is a Motley Fool Hidden Gems pick. Netgear is a Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Because Dan Dzombak spends his days on CAPS, his investment knowledge growth prospects are high. Or something like that. He does not have a financial position in any of the stocks mentioned in this article. The Motley Fool's disclosure policy thinks of itself as undervalued, but is unsure of its growth prospects.


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