Undervalued Stocks with Respect to Growth and Yield (PEG+Y Ratio)

As the Stock Market including the U.S. S&P 500 Index goes down, experienced people say you should start creating a wish list of companies to buy at lower levels.

One measure of valuation is the PEG+Y Ratio which is the Forward Price Earnings Ratio divided by the Five Year Estimated Growth Rate Plus Yield:

PEG+Y = (Forward Price Earnings Ratio) / (5 Year Estimated Growth Rate + Yield)

PEGY (simpler form is the PEG Ratio) of less than 1 is a great value. A PEGY ratio of greater than 2 (or some other value like 1.5) can be considered overvalued.

Here are some PEG+Y Ratios of some popular companies:

#	Symbol	Company	PEG+Y	Current Price	Forward P/E	5 Year Growth Rate	Forward Yield
1	CEDC	Central European Distribution	0.15	6.08	7.07	46.62	0.00
2	BTU	Peabody Energy	0.16	31.61	5.56	33.05	1.00
3	SI	Siemens	0.22	86.96	8.37	35.50	3.00
4	FCX	Freeport-McMoran	0.27	29.87	4.99	15.06	3.30
5	AEA	Advance America	0.37	7.12	6.72	15.00	3.40
6	BAC	Bank of America	0.38	5.53	4.61	11.48	0.70
7	LVS	Las Vegas Sands	0.38	36.71	14.86	30.08	0.00
8	VE	Veolia	0.41	13.78	9.44	13.15	10.10
9	NXG	Northgate Minerals	0.42	3.26	15.52	36.80	0.00
10	JPM	JP Morgan	0.44	28.65	5.4	8.96	3.30
11	SHFL	Shuffle Master	0.45	7.74	11.22	25.00	0.00
12	GLW	Corning Glassware	0.46	11.88	6	11.50	1.60
13	HRS	Harris Corp	0.47	33.23	6.09	9.63	3.30
14	CNQ	Canadian Natural Resources	0.49	27.59	7.79	14.70	1.20
15	WFC	Wells Fargo	0.50	23.18	6.94	12.00	2.00
16	ABB	ABB Ltd	0.50	16.42	8.6	13.40	3.90
17	GE	General Electric	0.50	14.69	9.3	14.74	3.90
18	BIDU	Baidu	0.50	105.16	23.9	47.65	0.00
19	AAPL	Apple	0.51	374.6	11.47	22.69	0.00
20	NIHD	NII Holdings Inc.	0.51	25.06	9.49	18.66	0.00
21	NTES	NetEase	0.52	36.35	8.95	17.30	0.00
22	CAT	Caterpillar	0.53	70.55	7.94	12.44	2.50
23	PCLN	Priceline	0.54	445.75	15.23	28.31	0.00
24	GILD	Gilead	0.54	37.81	8.4	15.43	0.00
25	RTN	Raytheon	0.55	39.5	7.22	9.00	4.20
26	INTC	Intel	0.56	20.62	8.35	11.03	3.90
27	SLB	Schlumberger	0.56	57.72	10.67	17.32	1.70
28	GS	Goldman Sachs	0.57	90.08	5.97	9.04	1.50
29	TDG	Transdigm Group	0.57	77.38	14.2	24.97	0.00
30	NFLX	Netflix	0.59	113.25	17.37	29.32	0.00
31	CELG	Celgene	0.59	60.7	14.35	24.16	0.00
32	GEOY	Geo Eye	0.61	27.1	2 10.72	17.50	0.00
33	GOOG	Google	0.61	495.52	11.8	19.21	0.00
34	HCBK	Hudson City Bancorp	0.64	5.31	6.9	5.00	5.70
35	PM	Philip Morris	0.65	61.76	11.88	13.26	4.90
36	SWY	Safeway	0.66	16.32	8.77	9.78	3.50
37	DECK	Deckers	0.67	88.11	15.09	22.50	0.00
38	LOW	Lowe's	0.68	18.98	10.66	12.73	2.90
39	MDRX	AllScripts	0.69	16.99	15.88	23.11	0.00
40	HD	Home Depot	0.71	31.59	11.79	13.51	3.00
41	TRMB	Trimble Navigation	0.73	32.4	2 13.4	18.25	0.00
42	MA	Mastercard	0.74	310.88	14.92	19.84	0.20
43	CSCO	Cisco	0.76	15.19	8.08	9.20	1.50
44	RIG	Transocean	0.76	45.91	7.77	3.65	6.60
45	DEO	Diageo	0.79	75.15	11.82	10.70	4.30
46	TGT	Target	0.82	47.8	11.01	10.96	2.40
47	WMT	Walmart	0.83	51.96	10.63	10.00	2.80
48	AMX	America Movil	0.84	21.5	9.51	9.95	1.40
49	ATVI	Activision	0.85	11.95	12.85	13.68	1.40
50	MO	Altria Group	0.86	26.56	12.13	8.0	0 6.10
51	INFY	Infosys	0.87	50.04	15.44	16.14	1.70
52	CME	Chicago Mercantile Exchange	0.87	248.5	12.76	12.44	2.30
53	IBM	IBM	0.87	173.29	11.74	11.83	1.70
54	CVS	CVS Caremark	0.87	32.97	10.34	10.35	1.50
55	GME	Gamestop	0.88	22.97	7.32	8.34	0.00
56	IGT	International Game Technology	0.89	13.73	12.15	11.99	1.70
57	ECOL	US Ecology	0.90	15.05	14.07	11.00	4.70
58	XOM	Exxon Mobil	0.90	71.15	8.14	6.47	2.60
59	WM	Waste Management	0.90	31.36	12.85	10.00	4.20
60	JACK	Jack in the Box	0.92	19.26	10.82	11.80	0.00
61	WEN	Wendy's	0.92	4.46	19.3	9 19.28	1.70
62	YUM	YUM Brands	1.02	48.45	15.0	9 12.56	2.30
63	PEP	Pepsi	1.06	60.29	12.51	8.55	3.30
64	ERTS	Electronic Arts	1.06	19.76	16.61	15.73	0.00
65	MON	Monsanto	1.08	60.11	17.58	14.30	2.00
66	VCLK	Value Click	1.08	14.92	13.44	12.43	0.00
67	UL	Unilever	1.10	30.56	12.18	7.00	4.10
68	PG	Procter and Gamble	1.12	62.84	13.63	8.90	3.30
69	T	AT&T	1.14	28.16	11.09	3.77	6.00
70	MCD	McDonalds	1.14	86.02	15.06	10.01	3.20
71	QSII	Quality Systems	1.15	92.11	26.85	21.95	1.40
72	SNDA	Shanda Interactive	1.17	28.86	15.86	13.53	0.00
73	K	Kellogg	1.18	52.88	13.95	8.65	3.20
74	GIS	General Mills	1.24	37.96	13.41	7.60	3.20
75	SWK	Stanley Black and Decker	1.26	48.25	7.91	3.00	3.30
76	YHOO	Yahoo	1.27	13.53	16.3	12.84	0.00
77	HMSY	HMS Holdings	1.27	22.95	31.01	24.33	0.00
78	JNJ	Johnson and Johnson	1.28	62.08	11.74	5.58	3.60
79	HAIN	Hain Celestial	1.28	28.31	16.27	12.70	0.00
80	PCP	Precision Castparts	1.28	148.33	14.29	11.05	0.10
81	HRL	Hormel Foods	1.31	26.53	14.99	9.50	1.90
82	ISRG	Intuitive Surgical	1.39	348.76	25.81	18.62	0.00
83	KO	Coca Cola	1.42	65.42	15.29	8.00	2.80
84	HANS	Hansen Natural	1.43	79.76	22.4	15.70	0.00
85	WFM	Whole Foods	1.44	62.44	27.75	18.70	0.60
86	CERN	Cerner	1.48	65.56	29.53	19.89	0.00
87	SGMS	Scientific Games	1.50	6.63	14.41	9.63	0.00
88	COST	Costco	1.52	81.63	21.26	12.77	1.20
89	GRMN	Garmin	1.56	30.6	14.17	4.10	5.00
90	COP	Conoco Philips	1.61	60.99	7.07	0.20	4.20
91	CMG	Chipotle Mexican Grill	1.65	292.7	33.88	20.50	0.00
92	CLH	Clean Harbors	1.69	47.83	20.18	11.93	0.00
93	AMT	American Towers	1.98	52.86	38.58	19.46	0.00
94	AMZN	Amazon	2.39	211.98	66.24	27.67	0.00
95	RGR	Sturm Ruger	5.80	24.63	12.76	0.00	2.20

Drink and Soda Stocks By the Numbers

In this article, we look at different Drink and Soda Stocks and look purely at the raw numbers. (Data taken from Yahoo Finance on Thursday, June 21, 2007):

Symbol	Stock Name	MyPEG	Forward PE	5 yr growth	Yield
HANS	Hansen Natural	0.77	22.80	28.60%	0%
CEDC	Central European Distribution	0.96	18.10	17.50%	0%
STZ	Constellation Brands	1.25	14.48	11.50%	0%
JSDA	Jones Soda	1.27	46.88	34.00%	0%
DEO	Diageo	1.30	17.22	10.50%	2.30
PEP	Pepsi	1.32	17.85	11.00%	2.30
BUD	Anheuser-Busch	1.52	17.13	9.00%	2.20%
KO	Coca Cola	1.58	18.15	8.50%	2.60%

In order to understand the chart, we have to understand the different elements.

MyPEG

MyPEG is my own variation of the PEG Ratio. A MyPEG of less than one means the stock is cheap relative to its growth. A MyPEG of greater than two means the stock is very expensive relative to its growth. More info on MyPEG in this link.

Forward PE

Forward PE is the Price divided by Forward estimated earnings. When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred.

5 Yr Growth

5 Yr Growth is an estimate by the analysts. As I discussed earlier, the higher the better, though some people such as the legendary Peter Lynch have suggested that buying fast stocks, but not too fast, might be a good idea (from Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market).

Yield

The higher yield, the better. If you have a high yield, high growth, and low PE, that's a good combination.

Symbol	Stock Name	EV/EBITDA	%Short	%Inst. Own
HANS	Hansen Natural	23.89	14.70%	60.70%
CEDC	Central European Distribution	16.51	10.20%	62.30%
STZ	Constellation Brands	9.81	11.40%	83.90%
JSDA	Jones Soda	105.68	26.30%	27.30%
DEO	Diageo	13.42	0%	18.70%
PEP	Pepsi	12.59	0.60%	68.50%
BUD	Anheuser-Busch	11.17	0.90%	63.00%
KO	Coca Cola	15.35	1.30%	64.50%

EV/EBITDA

Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation and Amortization. It is another measure of valuation. The lower the Better. A value of 8 or less is very good.

% Short

The higher the percentage, the higher number of people who believe the stock should go down. However, the higher the percentage, the better for those who go long because if good news is to hit a stock, not only does the price go up, but all those people who are shorting have to "cover" (Buy a stock to fulfill their loan obligation to the broker) their short position further fueling the gains. This is often called a "short squeeze".

% Institutional Ownership

People have different theories on this. Some people, like Peter Lynch, prefer a stock without that much institutional ownership. Because once the big mutual funds discover the stock, this could propel the stock to multibagger (make many times your money on your original investment) heights. However, some prefer a higher institutional ownership because that means that mutual funds and other institutional investors are already buying the stock (and may have them in their approved to buy list), and when more money comes in, they may add to their position.

Conclusion

Based on all this and based on just the numbers, Hansen Natural (HANS) and Central European Distribution Corp (CEDC) seem to have the best Growth at a Reasonable Price ratings.

Note that there are other companies that were not looked at including AmBev (ABV), a South American Drink Company, and National Beverage Corp (FIZZ), because there was some missing information. They could still be very good investments, however.