Seeking Alpha
Independent research, long/short equity, dividend investing, ETF investing
Profile| Send Message| ()  

Each month I search for small cap stocks priced reasonably based on price to earnings growth (PEG) and that have a recent history of positive earnings surprises. I use stockscreen123 as the tool for this particular screen. The basic premise of the list is that stocks with a history of earnings surprises have the strong probability of positive earnings surprises in the future. If the stocks are already trading at favorable valuations, then continued earnings surprises could mean that the stocks below are undervalued, perhaps significantly.

Last month's list performed well, gaining 9.18% versus 0% for SPY over the same period. The list tends to be high beta and could be more volatile than the overall market. However, it is not a comprehensive portfolio but rather a starting point for further research and an attempt to uncover some "hidden" gems.

This month we only have four stocks on the list and three of them are repeats from previous months. The one new addition is Graham Corporation (GHM) which is in the industrial goods sector. GHM designs, manufactures and sells vacuum and heat transfer equipment and it also supplies components and raw materials for the nuclear power market. It has a PEG ratio of .57, a projected current year P/E ratio of 17 and no long-term debt.

The stock looks to be in a consolidation phase after a swift run-up in October (chart courtesy of Finviz)

:

Below is the full list of stocks meeting the criteria for this month:

Ticker Name Last Rank MktCap Proj PE Cur FY PEGLT
DTLK Datalink Corporation 7.83 95.18 139.03 9.92 0.5
GHM Graham Corporation 21.73 94.44 215.42 17.01 0.57
LAD Lithia Motors, Inc. 21.88 93.68 567.03 11.2 0.42
SUSS Susser Holdings Corporation 24.91 90.55 423.89 9.64 0.76

Disclaimer: No current positions in stocks mentioned. Please note that Scott's Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott's Investments.

Source: 4 Small Cap Value Stocks With Earnings Growth