One of the amazing things about sharing work on places like Reddit is that you get a wide variety of people taking a look.
On the December Buffett Score update, there was one comment asking about using the price-to-earnings-growth (PEG) ratio to select a basket of stocks from the Buffett list to invest in.
Well, I haven’t back tested it, but this post is going to be part of the tracking for keeping an eye on this strategy going forward.
What is the PEG Ratio?
The price-to-earnings-to-growth (PEG) ratio is a valuation metric used to determine the relative value of a company’s stock price. It is calculated by dividing the price-to-earnings (P/E) ratio by the company’s earnings growth rate. The PEG ratio can be used to determine whether a stock is overvalued or undervalued, and can help investors identify potentially overpriced or underpriced stocks.
There is no specific “good” PEG ratio that applies to all companies or industries, as the appropriate PEG ratio will vary depending on the specific circumstances of the company in question. Generally, a lower PEG ratio is considered to be more favorable, as it indicates that the company’s stock is undervalued relative to its earnings growth rate. However, it is important to note that a low PEG ratio alone does not necessarily make a stock a good investment, and other factors should be considered as well.
For the purposes of our portfolio, we’ll be looking for stocks with a PEG ratio between 0 and 1. This implies that we’re paying a decent price for a company that’s growing its earnings at an acceptable pace.
Which Stocks Meet The Criteria?
There were 33 stocks that met all the criteria for the Buffett Score in December. Of those 33 stocks, 12 had a PEG ratio that fell between 0 and 1.
Here are the stocks:
- INVA - Innoviva Inc
- BIIB - Biogen Inc
- NVR - Nvr Inc
- WSM - Williams Sonoma Inc
- LPX - Louisiana-Pacific Corp
- LSTR - Landstar System Inc
- RHI - Robert Half International Inc
- AMAT - Applied Materials Inc
- KFRC - Kforce Inc
- NVEC - Nve Corp
- TXN - Texas Instruments Inc
- POWI - Power Integrations Inc
If you’d like to keep up with the results, I’ve added a Google Sheet that contains the stocks, their prices on 12/1 when they were “acquired” and a tracking table comparing the return to the S&P 500. At the time of writing, things are pretty much inline, but that will likely change as time goes on.
If you have additional ideas of things to try, let me know on Twitter or Reddit.