The Streets Growth at a Reasonable Price 2011 Selections
1.42%November 29 | MyPlanIQ portfolio symbol P_33514
Stocks Promising Growth at a Reasonable Price
MILLBURN, N.J. (Stockpickr)
-- My investment strategy focuses on growth at a reasonable price, or
GARP. To that end, I seek out stocks that are selling at low
price-earnings-to-growth, or PEG, ratios.
The price-to-earnings, or P/E, ratio is a measure of risk. It calculates the multiple of earnings an investor is willing to pay. The higher the multiple, the greater the stock price will react to changes in earnings per share. A stock sporting a lower multiple is considered safer because of the lesser impact that earnings has upon stock price. Lower-P/E stocks tend to compensate investors by paying dividends.
The PEG ratio adjusts the P/E ratio for growth. A stock with a P/E of 16 growing earnings at 10% per year will have a PEG of 1.6. The lower the PEG, the less we are paying for future growth. The higher the PEG, the riskier the stock is because of the dual sensitivity to both changes in current earnings and future growth.