7 Stocks PEG-ed to Soar

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By Dan Dzombak
September 26, 2008 | Comments (3)

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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 are paying for the expected long-term growth. If a company has a PEG of 1, then for each point of growth you are paying one times earnings. But if growth expectations are higher than the PE, the PEG dips below 1 and you are 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 10%
PEs below 20
PEGs below 0.8
Top ratings (four or five out of five stars) from our community of investors

Company	Estimated 5-Year Annual Growth	PEG Ratio	CAPS Rating	Fools Saying Outperform
Corning (NYSE: GLW)	14.7%	0.62	*****	2737 of 2809
American Eagle Outfitters (NYSE: AEO)	13%	0.75	*****	2565 of 2698
ConocoPhillips (NYSE: COP)	11.1%	0.76	*****	3687 of 3819
Chesapeake Energy (NYSE: CHK)	12.5%	0.68	*****	5141 of 5277
Noble (NYSE: NE)	21.5%	0.38	*****	1601 of 1621
Transocean (NYSE: RIG)	15.4%	0.38	*****	4353 of 4451
Lincoln National (NYSE: LNC)	11.1%	0.78	*****	115 of 121

Data from Yahoo! Finance, Motley Fool CAPS, and Zacks Investment Research as of 9/25/08.

While these aren't formal 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.

If you are interested in a CAPS-specific product, check out the box below.

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Dan Dzombak enjoys Robotron 2004 too much. Try any of our Foolish newsletters today, free for 30 days. Chesapeake Energy is an Inside Value selection. American Eagle Outfitters is a Stock Advisor pick, and the Fool owns shares. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool disclosure policy thinks of itself as undervalued but is unsure of its growth prospects.

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Report this Comment On September 28, 2008, at 11:26 AM, jjsmithan wrote:

I absolutely agree with this article.
Great value exists especially when people panic and oversell. I do believe these good quality 7 stocks are ready to soar.
Report this Comment On September 29, 2008, at 5:57 PM, kshepheard wrote:

I pulled out and made some short term gains with AEO. For long the term I believe the company looks solid. They do not have a lot of debt and the retail market will rebound. Americans love to consume and regardless of the economic state of the country they will continue to do that.
I am long with Corning. The company's fundamentals are strong. The leadership within the company will need to be careful how they progress through this slowdown. We must remember slowdowns are temporary. One day the markets will pick up again and the names listed in this article are strong growth companies which will have some good buying opportunities for long term growth.
Report this Comment On October 06, 2008, at 8:26 PM, NearBoston02148 wrote:

Not the best way to invest. Corning(GLW) is down because consumer demand is down for flat screen TVs. LNC is getting beat up because it in the insurance sector. Look at the Beta for LNC. Much much higher than the rest of the Life Insurance. Wait until the volitility calms down to reenter.

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7 Stocks PEG-ed to Soar

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Follow along with the Global Gains team as they travel to key business centers in China to uncover the very best investing opportunities! Sign up here to receive their FREE dispatches from the road.

Comments from our Foolish Readers

Report this Comment On September 28, 2008, at 11:26 AM, jjsmithan wrote:

Report this Comment On September 29, 2008, at 5:57 PM, kshepheard wrote:

Report this Comment On October 06, 2008, at 8:26 PM, NearBoston02148 wrote:

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