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.

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