The price-to-earnings-growth [PEG] ratio is primarily a growth investing metric that measures the price-to-earnings ratio in relation to the growth rate the company will experience in the future. This metric is useful for determining if a company is under-valued when compared to its expected growth rate. Many growth investors use this figure when performing research, but few value investors believe it yields any useful information. The problem value investors have with this metric is that it relies on estimates of future growth. Value investors prefer hard facts, not estimates. Here at Freund Investing, however, we believe that the value investing methodology taught by Ben Graham and Warren Buffett can be enhanced by including certain growth metrics, including the PEG ratio.
As important as the PEG ratio is, it cannot be completely relied upon for investment selections. Rather, it should be used as one portion of the overall picture. Investments with low PEG ratios are often undervalued to begin with, and present a great source of investments which should be researched further. The following are the lowest 15 PEG ratios of all investments listed on the most common exchanges. The investment with the highest PEG ratio, Primus Guaranty, has a PEG of merely 0.27. The lowest is seen at Security Capital, with a PEG of only 0.11.
- Security Capital (NYSE: SCA)
- First Marblehead (NYSE: FMD)
- Tidewater, Inc. (NYSE: TDW)
- Kookmin BK ADS (NYSE: KB)
- Navios Maritime (NYSE: NM)
- Continental Resrc (NYSE: CLR)
- Atwood Oceanics I (NYSE: ATW)
- Freeport McMoran (NYSE: FCX)
- Savvis, Inc. (NasdaqGS: SVVS)
- Advanced Semiconductor (NYSE: ASX)
- Hercules Offshore (NasdaqGS: HERO)
- Hardinge, Inc. (NasdaqGS: HDNG)
- Northgate Mineral (AMEX: NXG)
- American Dental Partners (NasdaqGS: ADPI)
- Primus Guaranty (NYSE: PRS)
As always, don’t take these as recommendations, rather as a good place to start researching. Lucky for you, the Investment Advisor newsletter service performs this research for you, providing analysis on what we believe the best value stock on the market, by utilizing the FI methodology which includes PEG analysis, each month for as little as $0.30 per day. Check it out!
Disclosure: The author of this article does not own shares in any of the companies mentioned.