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5 excellent value picks with discounted PEG

Going by the Oracle of Omaha’s success story, value investment is one of the most tempting strategies to bet on even amid uncertain market conditions. As per data provided by a Forbes article, shares of Berkshire Hathaway, owned by Warren Buffett, increased 20% in 2016, boosting the Oracle of Omaha’s personal fortune by $12.3 billion (more than any other billionaire in the U.S.) to $74.2 billion.

While searching for a suitable value investment option, investors are unlikely to consider price/earnings to growth (PEG) ratio among a number of other popular value metrics like price/earnings (P/E), price/sales (P/S) or price/book value (P/B). This is because they often find this ratio complicated, considering the limitations in calculating the future earnings growth potential of a stock.

However, at a time when volatility strikes every second day, it is pointless to ponder on methods, which don’t consider a stock’s future growth rate while calculating its intrinsic merit. Yardsticks such as dividend yield, P/E or P/B are most commonly used to single out whether a stock is trading at a discount.

However, these ratios, while not taking into account the future growth potential of a stock, may end up convincing us to invest in stocks that are at a discount just because of their poor show. This may often lead to “value traps” — a situation when these value picks start to underperform over the long run as the temporary problems, which once drove the share price down turn out to be persistent.

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