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Zacks.com featured highlights: Trinseo, Teck Resources, SMART Global Holdings, QUALCOMM and Greenbrier

Texas Capital (TCBI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

For Immediate Release

Chicago, IL – October 20, 2017 - Stocks in this week’s article include Trinseo S.A. (NYSE:TSE – Free Report), Teck Resources Limited (NYSE:TECK – Free Report), SMART Global Holdings, Inc. (Nasdaq:SGH – Free Report), QUALCOMM Incorporated (Nasdaq:QCOM – Free Report) and The Greenbrier Companies, Inc. (NYSE:GBX – Free Report).

Screen of the Week of Zacks Investment Research:

5 Great GARP Stocks Based on Low PEG Ratio

Investors seeking long-term growth often wonder whether they should resort to any of the fundamental strategies like growth or value, or follow an approach that combines the best of both. Not to forget the fact that, a pure play value investor always misses the chance of betting on stocks that have bright long-term prospects. On the other hand, a growth investor often ends up investing in expensive stocks.

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It has been observed that strategic mingling of both growth and value investing principles gives us a mixed investing strategy. Termed as GARP (growth at a reasonable price), this approach is getting popular with each passing day. What GARPers look for is whether the stocks are somewhat undervalued and have solid sustainable growth potential (Investopedia).

And here lies the importance of a not-so-popular fundamental metric, the price/earnings growth (PEG) ratio. Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.

The PEG ratio is defined as: (Price/ Earnings)/Earnings Growth Rate

It relates the stocks P/E ratio with future earnings growth rate.

While P/E alone only gives the idea of stocks, which are trading at a discount, PEG while adding the GROWTH element to it, helps to find those stocks that have solid future potential.

A lower PEG ratio, preferably less than 1, is always better for GARP investors.

Say for example, if a stock’s P/E ratio is 10 and expected long-term growth rate is 15%, the company’s PEG will come down to 0.66, a ratio which indicates both undervaluation and future growth potential.

Unfortunately, this ratio is often neglected due to investors’ limitation to calculate the future earnings growth rate of a stock.

There are some drawbacks to using the PEG ratio though. It doesn’t consider the very common situation of changing growth rates such as the forecast of the first three years at very high growth rate followed by a sustainable but lower growth rate in the long term.

Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.

Here are the screening criteria for a winning strategy:

PEG Ratio less than X Industry Median

P/E Ratio (using F1) less than X Industry Median (For more accurate valuation purpose.)

Zacks Rank of 1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1  or #2 have a proven history of success.)

Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity.)

Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stock is easily tradable.

Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: Upward estimate revisions add to the optimism, suggesting further bullishness.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1, 2 or 3 (Hold) offer the best upside potential. 

Here are five of the nine stocks that qualified the screening:

Trinseo S.A. (NYSE:TSE – Free Report): The company is a global materials solutions provider and manufacturer of plastics, latex binders, and synthetic rubber. Apart from a Zacks Rank #2 and a Value Score A, the company also has an impressive expected five-year growth rate of 8%.

Teck Resources Limited (NYSE:TECK – Free Report): The company works on natural resources in the Americas, the Asia Pacific and Europe. Its principal products include steelmaking coal; copper concentrates and refined copper cathodes; refined zinc and zinc concentrates and lead concentrates.  The company has an impressive current-year growth rate of 149%. The stock currently has a Value Score of A and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

SMART Global Holdings, Inc. (Nasdaq:SGH – Free Report): The company designs, manufactures, and supplies specialty memory solutions worldwide. It also offers supply chain services, including procurement, logistics, inventory management, temporary warehousing, programming, kitting, and packaging services.  Apart from a discounted PEG and P/E, the stock has a Value Style Score of B and holds a Zacks Rank #1.

QUALCOMM Incorporated (Nasdaq:QCOM – Free Report): This is a provider of digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The stock currently carries a Zacks Rank #2 and has a Value Style Score of B. The company also has an impressive long-term expected growth rate of 10%.

The Greenbrier Companies, Inc. (NYSE:GBX – Free Report): The company designs, manufactures, and markets railroad freight car equipment in North America and Europe. The stock currently sports a Zacks Rank #1 and has a Value Style Score of A. It also has an impressive long-term historical earnings growth rate of 48.1% for the next year.

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine.  But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112

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Greenbrier Companies, Inc. (The) (GBX) : Free Stock Analysis Report
 
QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
Trinseo S.A. (TSE) : Free Stock Analysis Report
 
Teck Resources Ltd (TECK) : Free Stock Analysis Report
 
SMART Global Holdings, Inc. (SGH) : Free Stock Analysis Report
 
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