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 P/E, 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 that are also highly rated by our 115,000-plus-member Motley Fool CAPS community.
These stocks have:
- Expected five-year growth rates above 10%
- P/Es below 20
- PEGs 0.8 or below
- 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 |
24.0% |
0.25 |
***** |
1904 of 1961 |
|
Boeing |
12.38% |
0.75 |
**** |
3102 of 3397 |
|
China Medical Technologies (ADR) |
40.1% |
0.57 |
***** |
1111 of 1140 |
|
Deere & Company |
10.5% |
0.4 |
**** |
2096 of 2188 |
|
National Oilwell Varco |
23.0% |
0.29 |
***** |
1926 of 1957 |
|
Suntech Power Holdings |
40.5% |
0.5 |
**** |
3783 of 3902 |
|
Walt Disney |
12.33% |
0.8 |
**** |
3218 of 3487 |
Data from Yahoo! Finance, Motley Fool CAPS, and Zacks Investment Research as of Oct. 9, 2008.
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.
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