10 Top-Rated Stocks With Low P-E Ratios
By
Vincent Mao
Investor’s
Business Daily
People love to find good bargains. In the stock market, one commonly used valuation gauge is the price-earnings ratio or P/E. Be careful of picking up bargains because that can mean buying laggards. But there will be times when highly ranked stocks trade at low multiples.The
price-earnings ratio or P/E has been used for many years as a quick valuation gauge. The ratio is calculated by dividing the stock’s price by its annual earnings. The most often used is the trailing P/E, which is computed by dividing the current stock price by the sum of the company’s last four quarters of earnings. The forward P/E is calculated the same way, except that the denominator is based on profit estimates for the next four quarters. Conventional
wisdom states that stocks with low P/Es are deemed cheap and should be bought, while companies with high P/Es are overvalued and should be sold. IBD’s study of past market winners found that P/E ratios were irrelevant in a stock’s price performance. Instead, earnings growth should be investors’ main concern. Thus, avoiding high P/E stocks can cause you to miss out on some of the market’s biggest winners. The
stocks on this week’s list were screened for trailing and forward P/E ratios of 15 or lower. Second, we screened for stocks with IBD Composite Ratings of 90 or higher – ensuring that the stocks on the list are among the top 10% in terms of IBD ratings. Issues with high Composite Ratings generally have solid fundamentals, strong technicals and are leaders within their respective industry groups. To
further ensure that the companies met all our criteria of solid growth and leading price performance, we only included stocks with Earnings Per Share (EPS) and Relative Price Strength (RS) Ratings of 70 or higher. Additionally,
a stock’s Accumulation/Distribution Ratings had to be A, B or C. This rating tracks the amount of institutional buying (accumulation) and selling (distribution) in a stock over recent months. Price gains on above-average volume help boost the A/D Rating, while declines on above-average volume hurt the rating. The Accumulation/Distribution rating is on an A-E to scale, with A being the best. Lastly,
only stocks priced above $15 with an average daily volume of at least 200,000 shares were included. Data
as of Wednesday, Sept. 6 market close. * The Earnings Per Share Rating compares a company’s last two quarters and last 3-5 years of growth and stability with those of all other companies. A 90 rating means its earnings outperformed 90% of all companies’. **
The Relative Price Strength Rating that appears for each stock is calculated by comparing its price change over the past 12 months to that of all other stocks in the tables. Results are rated on a scale from 1 to 99, with 99 being best. A RS Rating of 99 is the highest possible and means the stock has outperformed 99% of all stocks in the past 12 months. An RS Rating of 1 means nearly all other issues have done better. Market leaders usually rate 85 or higher. Back
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