PEG Profits: Growth and Value

06/17/2015 9:00 am EST


Stephen Quickel

Editor, US Investment Report

Our stocks are handily out-gaining the market averages even in 2015. It’s also clear that they are quite reasonably valued, suggests Stephen Quickel, editor of US Investment Report.

True, their traditional price/earnings ratios are higher than the S&P 500 index. But their earnings are expected to grow twice as fast as the S&P universe; 20% a year vs. 10%.

As a result, their PEG ratios (P/E divided by earnings growth) are far more attractive. Overall, our PEGs average is well below the ideal level of 1.00, while the S&P 500 PEG is 1.70.

Here are thumbnail descriptions of some of the new stocks added to our Recommended List.

In the consumer goods and services arena, we like the two media giants, CBS Corp. (CBS) and Time Warner (TWX)—not to be confused with Time Warner Cable (TWC)—for their broad competitive positioning, rapid earnings growth, and attractive PEGs.

In the drugs and healthcare sectors, we’ve added three up-and-coming healthcare stocks. Acadia Healthcare (ACHC) provides psychiatric inpatient care at southeastern treatment facilities, with 25% earnings growth.

Inc Research Holdings (INCR) does contract research for biotech and devices clients, with earnings doubling this year. Molina Healthcare (MOH) is expected to grow earnings 36% a year.

We are also recommending two industrial goods suppliers offering 20%-plus earnings growth. Chicago’s LKQ Corp. (LKQ) provides auto and truck replacement parts in North America and Europe. Its shares are up from $23 to 28 since March and headed for the mid-30s.

Zebra Technologies (ZBRA), the bar code pioneer, provides an expanded lineup of enterprise management products and services. ZBRA gapped up $93 to $105 in May and seems destined for $125.

In information technology, these rapid-growth small fries look promising. Tableau Software (DATA) is a management software stock that has gapped up twice this year, but just now is a bit pricey.

Also in IT, Virtusa (VRTU) is a consulting specialist doing business from Sweden to Singapore and growing earnings 25% a year.

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