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. Related: 5 Rocket Stocks With Growth Potential The objective for GARP investors is to seek out stocks with PEG ratios closer to 1 and avoid stocks with PEG ratios closer to 2. Many momentum or fad stocks will trade at elevated PEG ratios. No wonder that those stocks are more likely to crash and burn when they post an earnings miss or when expected growth contracts. Here is a list of four low PEG stocks to consider for investment.
Polo Ralph Lauren
Buffalo Wild Wings
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