I designed Portfolio Grader to help investors find the very best stocks at any given moment in time. It has worked very well for me and many others who use the stock-grading system to find stocks with the best-of-the-best fundamentals that attract the big-money buying pressure that moves stocks higher.
While I am strictly a numbers guy and rely heavily on the fundamental and quantitative information generated by Portfolio Grader, I am aware that many investors like to select cheap stocks based on measures such as price-to-earnings ratio, price-to-free-cash-flow and other measures of corporate value.
The good news is that Portfolio Grader can work for both of us.
No matter what other qualifiers you use in the stock selection process, it just makes good sense to rely on Portfolio Grader to select those with the type of fundamentals that will attract the buying pressure that moves them higher. Identifying Buy-ranked cheap stocks in our grading system can help you avoid value traps and stocks that trade at low valuations for very good reasons.
If we look at those stocks trading with single-digit P/E ratios right now, it becomes a very simple task to separate the wheat from the chaff. There are many well-known stocks trading at low P/E ratios that get horrible grades from our system and should be avoided:
- Ryland Homes (RYL) is a name you might hear discussed as a bargain, but the stock was downgraded to a Sell back in November to a “D” and is best avoided.
- Standard Pacific (SPF) is another builder you should probably avoid as it is also ranked “D.”
- In spite of the low P/E ratio ,you probably want to avoid discount retailer Big Lots (BIG), as the stock was just downgraded a Strong Sell this week.
But fear not — there are some great companies with solid fundamentals that earn a Buy ranking from Portfolio Grader and are better candidates for a low-P/E portfolio.
Apollo Global Management (APO) is one of the largest private equity and alternative investment firms in the world, and the outstanding results are driving solid earnings growth. Profits are up more than 100% over the past year and the stock has been ranked “A” since May. The shares have a P/E ratio of just 7.85 and are a Strong Buy at the current price.
United Community Banks (UCBI) has 106 branches in Georgia, North Carolina and Tennessee. The bank has seen continual credit improvements and a recovering economy drive 100% earnings gains this year. The bank is one of the few seeing strong loan growth, and business is so good that UCBI paid back its TARP obligations without needing to issue new equity. This cheap stock was upgraded to an “A” last July and remains a Strong Buy at the current price. The P/E ratio right now is just 5.
Portfolio Grader can help you achieve better returns by finding the very best cheap stocks … no matter what other criteria you are using to select stocks for your portfolio.