10 Top-Rated Stocks with Low P-E Ratios
While high-flying stocks often sport lofty P-E multiples, stocks with low multiples, sound fundamentals and positive price and volume action can deliver the goods too.
Investors and analysts commonly use price-earnings ratios as a quick valuation gauge. Stocks with low P-Es are often deemed a bargain. And stocks with high P-E´s are said to be overvalued. But in IBD´s study of past market winners, we found that P-E ratios were not a relevant factor in a stock´s price performance.
There are two types of P-E ratios. The most often used is the trailing P-E, which is computed by dividing the current stock price by the sum of the company´s last four quarters of earnings. Then there is the forward P-E. This is calculated the same way, except that the denominator is based on earnings estimates for the next four quarters.
Earnings growth should be investors´ main concern, and firms with the strongest growth usually trade at higher multiples. Thus blindly avoiding high P-E stocks can cause you to miss out on some of the market´s biggest winners. However, there are stocks trading at low multiples, which have sound fundamentals as well as positive price and volume action that may be worthy of further investigation.
The stocks on this week´s list were screened for trailing and forward P-E ratios of 15 or lower. Second, we screened for stocks with IBD Composite Ratings of 90 or higher - ensuring that the stocks are among the top 10% of performers right now. Issues with high Composite Ratings generally have solid fundamentals, strong technicals and are leaders within their respective industry groups.
To further ensure that the companies met a criteria of solid sales and earning growth and leading price performance, we only included stocks with IBD Earnings Per Share (EPS) and Relative Price Strength (RS) Ratings of 70 or higher.
Additionally, a stock´s Accumulation/Distribution Ratings had to be “A’, “B’ or “C’. This rating tracks the amount of buying (accumulation) and selling (distribution) in a stock over recent months. Price gains on above-average volume help boost the A/D Rating, while declines on above-average volume hurt the rating. The Accumulation/Distribution rating is on an A-E to scale with A being the best.
Lastly, only stocks above $15 with an average daily volume of at least 200,000 shares were included.
Data as of Wednesday, June 20 market close.
* The Earnings Per Share Rating compares a company´s last two quarters and last 3-5 years of growth and stability with those of all other companies. A 90 rating means its earnings outperformed 90% of all companies´.
** The Relative Price Strength Rating that appears for each stock is calculated by comparing its price change over the past 12 months to that of all other stocks in the tables. Results are rated on a scale from 1 to 99, with 99 being best. A RS Rating of 99 is the highest possible and means the stock has outperformed 99% of all stocks in the past 12 months. An RS Rating of 1 means nearly all other issues have done better. Market leaders usually rate 80 or higher.
1. Tenaris (TS)
Composite Rating: 98.* The Luxembourg-based steel maker is threading around its 10-week moving average, consolidating a new base since mid-December. Sales growth has ranged from 9% to 50% in the past five quarters. Last month, it completed its $2.2 billion acquisition of oil and gas equipment maker Hydril P/E Ratio: 15.
2. Superior Energy Services (SPN)
Composite Rating: 98. The oil-field services provider continues to rebound from a pullback to its 50-day moving average. Mutual fund ownership of the firm has risen to 172 funds, up from 147 three quarters ago. Superior Energy has delivered earnings above analysts´ estimates for six straight quarters. P/E Ratio: 15.
3. BHP Billiton Ltd. (BHP)
Composite Rating: 98. Australia-based BHP is trading near record highs. It is the world´s largest mining company with about 38,000 employees and operations in 25 countries. It recently hired Merrill Lynch & Co. as an adviser to help it examine a possible bid for rival Alcan. P/E Ratio: 15.
4. Western Refining (WNR)
Composite Rating: 98. Late last month, the oil and gas refiner completed its $1.13 billion acquisition of Giant Industries, despite a last-minute attempt by regulators to block the deal. The transaction makes Western the fourth largest independent refiner in the U.S. P/E Ratio: 14.
5. Rio Tinto (RTP)
Composite Rating: 98. The U.K.-based mining company may be shaping a flat base. Last month, it joined forces with BP to form Hydrogen Energy, an alternative-energy company. The joint venture will first focus on using fossil fuels and carbon technologies to produce clean electricity. P/E Ratio: 14.
6. TBS International (TBSI)
Composite Rating: 98. Bermuda-based TBS International sailed to an all-time high this week. The company provides international tanker transportation services through a fleet of 33 vessels. Its profit growth fell for three straight quarters last year, but has since rebounded. In May, it reported a 93% jump in Q1 earnings, helped by a near 36% rise in average charter rates. P/E Ratio: 14.
7. Alon USA Energy (ALJ)
Composite Rating: 98. The Dallas-based company refines crude oil and markets fuel products under the FINA brand. It also runs over 160 7-Eleven stores under its Southwest Convenience Stores unit. The stock climbed to a record high this week. P/E Ratio: 14.
8. Ceradyne (CRDN)
Composite Rating: 97. Ceradyne makes a variety of ceramic armor systems for personal, vehicle, and aircraft use. The company also makes many components and products for the chemical, industrial and medical industries. Earlier this week, it opened a solar energy ceramic-related plant in China. P/E Ratio: 14.
9. Allis-Chalmers Energy (ALY)
Composite Rating: 98. Oil and gas field services company Allis-Chalmers Energy has been climbing since mid-April. It´s now 13% off its all-time high, notched six months ago. Its string of triple-digit profit growth ended in the most recent quarter, with a still-solid 78% gain. P/E Ratio: 13.
10. Delek US Holdings (DK)
Composite Rating: 97. The petroleum refiner recently ran up to an all-time high on heavy trade. Mutual fund ownership of the firm has more than doubled to 30 funds from 11 three quarters ago. The company has a three-year earnings growth rate of 218%. P/E Ratio: 13.
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