Now is a fantastic time to be a value investor, and it's an even better time to be a growth investor. Superinvestors 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're paying one times earnings. But if growth expectations are higher than the P/E, the PEG dips below 1. That means you're getting more bang for your buck!
Now, the fun part
With that said, here are seven cheap stocks with great growth potential. You can cross-check them against the opinions of our 145,000-plus-member Motley Fool CAPS community. These stocks have:
- Expected five-year growth rates greater than 10%
- P/Es below 20
- PEGs below 0.8
|
Company |
Estimated 5-Year Annual Growth |
PEG Ratio |
CAPS Rating |
|
|---|---|---|---|---|
|
UnitedHealth Group |
12% |
0.76 |
***** |
|
|
Research In Motion |
19% |
0.80 |
*** |
|
|
First Solar |
31% |
0.51 |
** |
|
|
Weatherford International |
35% |
0.53 |
***** |
|
|
UBS |
12% |
0.32 |
** |
|
|
Sohu |
27% |
0.33 |
**** |
|
|
PetroChina |
13% |
0.55 |
**** |
|
Data from Motley Fool CAPS and Finviz.com as of Nov. 30, 2009.
While these aren't recommendations, they are great starting points 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...
