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PE/G ratio indicates how much an investor is willing to pay for a stock on the basis of its earnings growth. If it is less than 1, it usually means the stock price is undervalued relative to the earnings growth rates. Below are 17 stocks from S&P 500 with PE/G less than 1 and current P/E between 20 and 60:

Name (Symbol)

PEG Ratio

Debt/CF

1-Year Potential Gain

Xerox (NYSE:XRX)

0.37

3.4

22%

Peabody Energy (NYSE:BTU)

0.59

2.5

18%

MetroPCS (PCS)

0.65

3.8

0%

Celgene Corporation (NASDAQ:CELG)

0.68

1.1

21%

Baker Hughes (NYSE:BHI)

0.71

4.5

22%

CONSOL Energy Inc. (NYSE:CNX)

0.72

3.3

21%

CBS Corporation (NYSE:CBS)

0.83

3.4

9%

Discovery (NASDAQ:DISCA)

0.83

5.4

15%

Halliburton Company (NYSE:HAL)

0.84

1.7

27%

Caterpillar, Inc. (NYSE:CAT)

0.89

5.7

8%

Mylan Inc. (NASDAQ:MYL)

0.90

5.9

10%

Google Inc. (NASDAQ:GOOG)

0.92

0.5

27%

Sunoco, Inc. (NYSE:SUN)

0.94

1.4

6%

Genworth Financial (NYSE:GNW)

0.95

8.6

19%

Invesco Plc New (NYSE:IVZ)

0.96

18.9

21%

Express Scripts, Inc. (NASDAQ:ESRX)

0.97

1.2

15%

Viacom Inc. (NASDAQ:VIA)

0.97

3.7

-8%

Four Rules to Further Filter

In addition to PE/G ratios, I use the following 4 criteria to further filter my picks:

1. Short Ratio

Viacom has an astonishing short ratio of 30.

2. Potential One-Year Gain

This is based on the current price vs. 1-year analysts’ target price. MetroPCS exceeds its 1-year target price.

4. 200-day Moving Average

Though fundamentally Celgene Corp and Google Inc. are bargains at current prices, they are traded below 200-day average.

4. Debt/Operation Cash Flow Ratio

Many companies in the list above have very high debt level.

After applying above criteria, there are 3 stocks left with low short-ratios, high potential gains, low debt level and currently traded above their 200-day moving averages: Express Scripts, Inc., Halliburton Company and Peabody Energy.

Express Scripts (ESRX)

Express Scripts is a pharmacy benefit management services provider. Its year-over-year quarterly earnings growth is 47%. The company is in acquisition mode and much of its growth is from acquisition. Following revenue chart from Google Finance shows its steady revenue growth over the last five years:

Halliburton Company (HAL)

Halliburton provides various products and services to the energy industry. Goldman Sachs’ recent "sell" call on commodities might impact energy stocks and commodities. Following is the direct competitor comparison from Yahoo Finance. As you can see, Baker Hughes has better margin, PEG and P/S than HAL. However, HAL has lower debt level:

Metrics

HAL

Baker Hughes (BHI)

Schlumberger (NYSE:SLB)

Gross Margin (ttm):

18%

22%

22%

PEG (5 yr expected):

0.8

0.7

1.2

P/S (ttm):

2.3

2.0

4.3

Peabody Energy (BTU)

Peabody Energy engages in the exploration, mining, and production of coal. Its year-over-year quarterly earnings growth is 127%. Fears of meltdowns at nuclear reactors in Japan have caused many countries to reconsider the future of nuclear power and coal stocks are up more than 13% since March 11, 2011.

Conclusion

In your productive years, you focus on growing capital, but as you approach retirement, you want to think about income stream. If interests are low, either you need to work longer or you need to accumulate more assets, according to an article titled "The Race to Zero" published in CFA Magazine March – April 2011 issue.

One way to generate adequate returns for your portfolio is through fundamentally sound high growth companies. Just remember to have your stops in place when trading high growth stocks.

Notes: Data is from Yahoo and Google Finance and is valid as of April 12, 2011.

Source: 17 Undervalued High Growth, Large Cap Stocks