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Ben Graham's Secret Weapon: The PEG Ratio

·4 min read
  • (1:00) - Creating A Strong Value Wishlist: How To Use The PEG Ratio

  • (9:10) - Tracey’s Top Stock Picks

  • (21:50) - Episode Roundup: ALB, BWA, LNG, TSM, XOM

  • Podcast@Zacks.com


Welcome to Episode #297 of the Value Investor Podcast.

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

2022 has been a volatile year in the stock market. Many are expecting this fall to be volatile too.

If you’re waiting on the sidelines, it’s the perfect time to put together a value stock wish list.

And while you’re looking for value stocks, why not also throw in growth? It’s usually a rare combination.

Ben Graham’s PEG Ratio

Ben Graham, the father of value investing and former boss of Warren Buffett, loved to use the PEG ratio to find stocks that weren’t just cheap but that also have earnings growth.

The PEG ratio is a company’s stock price over its earnings, the P/E ratio, divided by the earnings growth. You can find the PEG ratio on most financial sites.

Screening for the PEG Ratio

Zacks.com has a basic PEG screen in its premium screens. It includes the Zacks Ranks of #1 (Strong Buy) or #2 (Buy), which are the top Zacks Ranks.

It looks for the PEG ratio under 0.55. That’s low as a PEG ratio under 1.0 usually indicates a company is undervalued.

The stocks have to be over $5 and it has a Current Average Broker Recommendation of 2.5.

This screen returned 50 stocks.

That’s a LOT of value stocks that also have growth.

5 Top Ranked Value Stocks with Earnings Growth

1.       Albemarle ALB

Albemarle is a lithium producer. It has raised earnings guidance twice already this year.

Albemarle’s earnings are expected to rise 425% this year. The Zacks Consensus is looking for $21.24 compared to just $4.04 last year.

Shares are up 16.6% this year but shares are still cheap with a forward P/E of 12.6. Albemarle pays a dividend, currently yielding 0.6%.

Should Albemarle be on your value wish list?

2.       Borg Warner BWA

Borg Warner delivers innovative and sustainable mobility solutions for the vehicle market. It has segments in propulsion, air management, fuel systems and EV products, including charging stations.

Shares are down 16.7% year-to-date but Borg Warner is now dirt cheap. It trades with a forward P/E of 8.5.

Earnings are expected to rise just 2.9% in 2022 but 19% next year.

Should Borg Warner be on your value wish list?

3.       Cheniere Energy LNG

Cheniere Energy is an American liquified natural gas producer. On Aug 4, it raised its full year guidance.

Earnings are expected to be up 297% to $18.30 from a loss of $9.25 a year ago.

Shares of Cheniere Energy have jumped 53% this year.

Cheniere Energy has a forward P/E of just 8.7. It pays a dividend, currently yielding 0.8% and is also doing a share buyback.

Should Cheniere Energy be on your value wish list?

4.       Taiwan Semiconductor TSM

Taiwan Semiconductor has been on a slide all year. Shares are down 34% this year.

But earnings are expected to be up 53% this year but slow in 2023. Analysts have further earnings gains of just 3.5%.

Taiwan Semiconductor is cheap too, with a forward P/E of 12.7.

Will Taiwan Semiconductor get even cheaper by later this year?

5.       ExxonMobil XOM

ExxonMobil is expected to grow earnings by 135% this year on rising oil and natural gas prices. The Zacks Consensus is looking for $12.69 versus $5.38 last year.

Shares of ExxonMobil are up 53% this year. But with the big earnings growth, it’s still cheap with a forward P/E of 7.5.

ExxonMobil pays a big dividend, currently yielding 3.7%.

Is there still time to get into ExxonMobil in 2022?

What Else Should You Know About the PEG Ratio?   

Tune into this week’s podcast to find out.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
BorgWarner Inc. (BWA) : Free Stock Analysis Report
Albemarle Corporation (ALB) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
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