10 Highest-Rated Stocks with Low P-E Ratios
By Scott Bernberg
Investor’s Business Daily
We're often conditioned to see bargains in our everyday lives, whether it's at the supermarket or the shopping mall. But when looking for bargains in the stock market, investors must be discerning.
This week's list showcases stocks with low P-E ratios, on a trailing and forward basis. They're highly-rated stocks but sell at low multiples. Oil and steel stocks, well represented on this week's list, often carry low P-Es because of the cyclical nature of their business. The market is unwilling to pay a premium because of unsustainable growth.
Investors are often unwilling to pay a premium for a stock because they feel it's too expensive. But IBD research has shown that big stock market winners made their price moves when they were selling at seemingly high multiples.
To calcuate a stock's trailing P-E, take the stock's current price and divide by the last four quarters of earnings. A forward P-E is calculated the same way, except the denominator is based on earnings estimates for the next four quarters.
We screened for stocks with an IBD Composite Rating of 90 or higher – so you’re able to see the top 10% of performers right now. IBD’s Composite Rating represents a powerful combination of fundamentals and leading price performance within the company’s industry group.
It combines all five IBD SmartSelect Ratings into a comprehensive score. Stocks with high Composite Ratings generally have top fundamentals and are leading price performers in their industry groups.
Only stocks with an Accumulation/Distribution Rating of “A”, “B”, or “C” were included in the list. This rating tracks the amount of institutional buying (accumulation) and selling (distribution) in a stock over recent months by looking at daily price and volume changes. Price rises in above-average trading help lift the Acc/Dis Rating, while price declines in above-average volume hurt the rating. The higher the letter rating, the more that is being purchased by the “big guns,” and since professional traders drive the price of stocks, this is a good high-sign for investors to consider following suit.
IBD screened for stocks with 1 year forward and trailing P/E ratios of 15 or lower. The current price of the stocks on the list had to be higher than $15 with an average daily volume above 200,000. Companies based outside of the U.S. were excluded from the list.
Back to Beat the Market: 10 Highest-Rated Stocks with Low P-E Ratios
1. Alon USA Energy (ALJ) - View IBD Stock Checkup
Composite Rating 99*. The emerging leader in IBD’s Oil & Gas Refining/Marketing group went public in July at $16. Annual return on equity in 2005 was a whopping 46.6%. Trailing P-E: 13, Forward P-E: 13.
2. First Marblehead (FMD) - View IBD Stock Checkup
Composite Rating 99. The provider of student loan services recently announced a quarterly cash dividend of 12 cents a share. It has a three-year EPS growth rate of 111% and a three-year sales growth rate of 107%. Trailing P-E: 14, Forward P-E: 12.
3. Holly Corp. (HOC) - View IBD Stock Checkup
Composite Rating 99. The Dallas-based petroleum refiner boasts three straight quarters of triple-digit profit growth. Trailing P-E: 14, Forward P-E: 13.
4. PW Eagle (PWEI) - View IBD Stock Checkup
Composite Rating 98. In late May, the leader in IBD’s Chemicals-Plastics group said it was considering strategic options, including a sale or acquisitions. Trailing P-E: 6, Forward P-E: 10.
5. Ryder System (R) - View IBD Stock Checkup
Composite Rating 98. The provider of transportation and supply chain management solutions is near the top of a long base it started in November 2004. Trailing P-E: 15, Forward P-E: 14.
6. Tesoro Corp. (TSO) - View IBD Stock Checkup
Composite Rating 97. Mutual fund ownership in the oil and gas refiner has risen for three straight quarters, from 173 funds to 203 funds. Trailing P-E: 8, Forward P-E: 8.
7. TXU Corp. (TXU) - View IBD Stock Checkup
Composite Rating 97. The Dallas-based energy company, with a market capitalization of $26.7 billion, has acted well since its breakout during the week ended May 5. Trailing P-E: 15, Forward P-E: 10.
8. Unit Corp. (UNT) - View IBD Stock Checkup
Composite Rating 96. The oil and gas driller has seen some selling pressure in recent weeks. Its Fundamental Rating of 99 (A+) is tops in IBD’s Oil & Gas-Drilling group. Trailing P-E: 11, Forward P-E: 9.
9. Kerr-McGee (KMG) - View IBD Stock Checkup
Composite Rating 96. Last month, the oil and gas producer raised its production growth forecast through 2008. Annual earnings are expected to rise 24% in 2006 and 31% in 2007. Trailing P-E: 12, Forward P-E: 12.
10. Armor Holdings (AH) - View IBD Stock Checkup
Composite Rating 96. In late May, the military contractor received an $84.7 million to supply armor components for Army Humvees. Armor’s aerospace and defense unit has an order backlog totaling $2.1 billion. Trailing P-E: 13, Forward P-E: 13.
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*Stocks are sorted by their SmartSelect Composite Rating. The Composite Rating combines all five IBD SmartSelect Ratings. Of the five, the Earnings Per Share Rating and Relative Price Strength Rating get the most weight; stocks’ percentage of their high of their 52-week high is also considered. The rating is on a scale of 1-99, with 99 being the best.
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