I know that there are many different stock-picking theories floating around out there. I prefer the one I have developed over the years, but I also know that other investors like to pick stocks based on things like P/E ratios and price-to-cash flow.
The trouble with many of these approaches is that they rarely take into account the actual fundamentals of the underlying company or investor demand for the stock. Stocks are often cheap for a reason, and if you’re just buying shares with a low P/E ratio you may be buying a portfolio of stocks with very poor fundamentals that are unlikely to perform as anticipated. Investors who want to buy stocks with low price-to-earnings ratios should consider using Portfolio Grader to find those inexpensive stocks with the very best fundamentals.
Constellation Brands (STZ) is a great example of a stock with a low P/E ratio that also has strong fundamentals. The company sells wines under some of the best known brands including Robert Mondavi, Clos du Bois, Blackstone and Simi. The Crown Imports division sells beer including popular brands such as Corona, Modelo Especial, Pacifico, and Negra Modelo. Analysts have been steadily raising estimates for this year and next as business has been better than Wall Street expected. STZ stock has a P/E ratio of just 8.7 and was recently upgraded to “A” in Portfolio Grader. STZ is a “strong buy” at the current price.
Federal Signal (FSS) has posted three strong earnings surprises so far this year. Demand for its environmental and fire and rescue products have been much stronger than expected. The company restructured its balance sheet last year, and interest expenses have declined by more than 70% — boosting the bottom line significantly. Earnings are up more than 60% so far this year, and the shares are still reasonably valued at just 7 times earnings. FSS stock was upgraded in Portfolio Grader to an “A” back in August and remains a “strong buy” at the current price.
American Equity Life (AEL) specializes in fixed-rate and index annuities, and business has been booming as cautious investors and savers look for places to put their money. The company has posted four consecutive positive earnings surprises, causing analysts to raise their estimates for 2014 in the past few months. The shares are still cheap when viewed thought the lenses of the P/E ratio, but more importantly, AEL has the type of solid fundamentals and investor demand that signify a potential winning stock. Shares of American Equity were upgraded to an “A” grade back in August, and AEL remains a “strong buy.”
No matter which set of fundamental or even technical characteristics you choose to search for stocks, using Portfolio Grader can help you make sure that you own only the very best stocks meeting your criteria.
Louis Navellier is the editor of Blue Chip Growth.
