Five Favorites for PEG Profits

03/07/2014 9:00 am EST


Stephen Quickel

Editor, US Investment Report

With interest rates still at rock-bottom levels, equities remain pretty much the only alternative to grow and retain capital for most people, suggests Stephen Quickel, editor of US Investment Report.

Moreover, price valuations are comparatively moderate because earnings gains have kept up with the price gains. Forward P/Es are in the mid-teens range and PEG ratios for our growth stocks are in an ideal range, just under 1.00.

Corporate America, still quite lean and well-managed in the wake of the recession and financial crisis of 2007 to 2009, continues to crank out rising profits. And in the stock market, sustained earnings growth is the name of the game.

We are adding several new stocks to the Recommended List. Here is what we like about them:

Seattle-based Alaska Air Group (ALK), under attack by Delta Air Lines on its home turf, has been expanding southward into Salt Lake City, New Orleans, and Tampa.

Its shares have doubled to $80 since last summer, along with other airline issues, yet still trade at only 11 times earnings and a PEG of 0.72. Despite two bouts of selling by top officers, insiders' holdings remain large.

Revenues and earnings of CBS Corp. (CBS), the broadcasting giant, keeps rising, enhanced by $2 billion of share repurchases. Little noticed sources of profit are lush retransmission fees for its content from cable, satellite, and telecom companies.

Constellation Brands (STZ), the world's largest wine seller (Mondavi, Clos du Bois, etc.), is rebounding after years of stagnant growth. Earnings are expected to rise 36% this year as revenues gallop ahead.

The turning point: acquiring control of Grupo Modelo's beer business from Anheuser-Busch InBev. Beer is now nearly half of total revenues. A flat price in early 2014, after a big jump in 2013, offers a buying opportunity.

Manitowoc (MTW), Wisconsin manufacturer, has two strong businesses: cranes of all sorts for heavy construction and food service equipment.

Analysts forecast 30% a year earnings growth with margins expanding in a recovering economy. MTW trades at just 14 times earnings and a PEG of 0.45.

With a portfolio of potent entertainment businesses, Walt Disney Co. (DIS) has more than doubled to 80 in two and a half years.

With every segment of the company generating rising revenues—from the backbone media networks business to its parks and resorts, studio entertainment, and consumer products—it could do so again going forward.

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