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How to Screen for Cheap Growth Stocks

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Welcome to Episode #236 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

With the market weakness, especially in the NASDAQ, hitting the growth stocks yet again, it’s time for value investors to poke around in the carnage to see if there are any deals.

Perhaps some growth stocks are now values?

But how do you find them?

Screening for Cheap Growth Stocks

It shouldn’t be a surprise, that one way to screen for growth AND value is using the PEG ratio.

The PEG ratio was a favorite of Benjamin Graham, considered the father of value investing.

The PEG is the forward P/E divided by the long-term growth consensus estimate.

A PEG under 1.0 usually indicates value.

Additionally, adding the Zacks Ranks of #1 (Strong Buy) and #2 (Buy) should give you companies with rising earnings estimates.

If you want to get more value, adding a P/B ratio under 3.0 will narrow it further.

This screen produced 67 stocks, which means you’ll have a big selection of cheap growth stocks to go through.

5 Cheap Growth Stocks with High Zacks Rank

1.       Vishay Intertechnology (VSH - Free Report) is one of the world’s largest manufacturers of discrete semiconductors and passive components. It’s cheap, with a forward P/E of just 10.7. Earnings are expected to soar 135% in 2021. That gives it a PEG ratio of just 0.5.

2.       PulteGroup (PHM - Free Report) is one of the largest home builders in the United States. This Zacks Rank #1 (Strong Buy) is trading with a forward P/E of just 7.3 even though shares are up 30% year-to-date. After a strong 2020, earnings are expected to jump another 47% in 2021. Are the home builders too cheap to ignore?

3.       Lumber Liquidators (LL - Free Report) is the largest specialty retailer of hardwood floors in America. Shares have fallen 25% year-to-date which has pushed it into “value” territory. It has a PEG ratio of just 0.8. Are these shares on sale?

4.       ManpowerGroup (MAN - Free Report) is a global staffing company which has a P/B ratio of just 2.8. Earnings are expected to soar 67.9% and revenue is forecast to rise 14% in 2021. It has a PEG ratio of just 0.9. Will the staffing companies be the big 2021 winners?

5.       Huntsman Corp. (HUN - Free Report) is a specialty chemical company. As the global economy reopens, earnings are expected to jump 176% in 2021. It remains dirt cheap, with a PEG ratio of just 0.2. The company recently raised its dividend 15%. It now yields 2.5%. Is there more room to run for the industrial companies?

What else do you need to know about finding cheap growth stocks?

Tune into this week’s podcast to find out.

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