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Five Low P/E Bargains For September 3
The price-to-earnings (P/E) ratio is one of the most widely used valuation measures in the stock market. The ratio is relatively easy to calculate and tells investors what the market is willing to pay for every $1 of a company's earnings. The P/E ratio has also been proved to have a significant relationship with long-term stock returns, and so despite its simplicity, it is a great starting point for starting stock analysis. (To learn more, check out our P/E Ratio Tutorial.)
P/Es of comparable companies should generally be the same, unless company-specific factors change the outlook of the company considerably. That means if there are comparable companies, and one is trading at a lower P/E, it may be relatively undervalued. This is a great way to find bargains in the market.
Let's take a look at five stocks with low P/Es worthy of follow-up research. If we research these stocks and buy them when their P/E multiples are below their peers' we have a chance to earn a nice return if the market starts valuing these stocks higher:
Garmin on Target?
Global positioning gadget maker Garmin has had a tough year to say the least. Competition has been stiff, and electronics retailers that sell its products like Circuit City (NYSE:CC) haven't exactly been ripping the cover off the ball.
However, the beating the stock has taken could be a bit overdone. One insider, director Donald Eller, seems optimistic as he bought 5,000 shares back in early August.
To its credit, Garmin still has a solid foothold in the business, and it has the potential to prosper over the long term. At present the company is expected to have earnings per share of $4.05 this year and $4.12 next year. To be clear, however, although the stock made the screen, I think that there will be a better entry point down the road.
Better To Wait
Very simply, I'm concerned that tax loss selling could depress the shares even further. I also think that it could take a couple of quarters for the investment community to again warm to the story given the sheer beating the stock has taken. Finally, I'd also like to hear a bit more about how management will distinguish Garmin's offerings from those of the competition.
Conclusion
Buying a stock when its P/E is depressed can provide big payoffs to patient investors. The important thing to do is determine if the characteristics of the company are comparable to its peers and industry. The P/E is often lower because the stock simply does not have the same earnings potential. However, there are many cases where the market sours on a stock in the short term and drives down its P/E. Finding those undervalued gems can help boost portfolio returns. To learn more on this and other strategies, read our Guide To Stock Picking Strategies.
What do you think of these low P/E stocks? Join the FREE Stock Picking Community to share your thoughts and see what other investors are saying.
P/Es of comparable companies should generally be the same, unless company-specific factors change the outlook of the company considerably. That means if there are comparable companies, and one is trading at a lower P/E, it may be relatively undervalued. This is a great way to find bargains in the market.
Let's take a look at five stocks with low P/Es worthy of follow-up research. If we research these stocks and buy them when their P/E multiples are below their peers' we have a chance to earn a nice return if the market starts valuing these stocks higher:
|
Company |
Trailing P/E |
Market Cap |
|
Ashford Hospitality Trust (NYSE:AHT) |
3.63 |
543M |
|
Chevron (NYSE:CVX) |
8.95 |
177B |
|
Flextronics (Nasdaq:FLEX) |
8.92 |
7.48B |
|
Gannett (NYSE:GCI) |
4.36 |
4.06B |
|
Garmin (Nasdaq:GRMN) |
9.12 |
7.20B |
|
Data as of market close August 29, 2008 |
||
Garmin on Target?
Global positioning gadget maker Garmin has had a tough year to say the least. Competition has been stiff, and electronics retailers that sell its products like Circuit City (NYSE:CC) haven't exactly been ripping the cover off the ball.
To its credit, Garmin still has a solid foothold in the business, and it has the potential to prosper over the long term. At present the company is expected to have earnings per share of $4.05 this year and $4.12 next year. To be clear, however, although the stock made the screen, I think that there will be a better entry point down the road.
Better To Wait
Very simply, I'm concerned that tax loss selling could depress the shares even further. I also think that it could take a couple of quarters for the investment community to again warm to the story given the sheer beating the stock has taken. Finally, I'd also like to hear a bit more about how management will distinguish Garmin's offerings from those of the competition.
Conclusion
Buying a stock when its P/E is depressed can provide big payoffs to patient investors. The important thing to do is determine if the characteristics of the company are comparable to its peers and industry. The P/E is often lower because the stock simply does not have the same earnings potential. However, there are many cases where the market sours on a stock in the short term and drives down its P/E. Finding those undervalued gems can help boost portfolio returns. To learn more on this and other strategies, read our Guide To Stock Picking Strategies.
What do you think of these low P/E stocks? Join the FREE Stock Picking Community to share your thoughts and see what other investors are saying.
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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