Zacks Investment Ideas Feature Highlights: Datalink, Cabela's, Team, Rocky Brands and Penn National Gaming

Sep 09, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 9, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Datalink (Nasdaq: DTLK), Cabela's Inc. (NYSE: CAB), Team, Inc. (Nasdaq: TISI), Rocky Brands, Inc. (Nasdaq: RCKY) and Penn National Gaming (Nasdaq: PENN).

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5 Cheap Growth Stocks

Growth investors can be known to sacrifice valuations for big earnings potential. But, we don't have to, especially right now.

Big sell offs often create deep value opportunities. And, despite all of the economic worries out there, corporate earnings are as strong as ever. So, the same growth stories that were looking good in July are now trading at a great discount.

But, just because there is more value out there doesn't mean we should be getting the best possible deal on those growth rates. One of the best ways to gauge that is to use the GARP method. Just because stocks are cheap right now, doesn't mean they are all a buy.

Growth at a Reasonable Price (GAPR)

Peter Lynch popularized that strategy, but investing in growth stocks is a tried and true investment style. Combining earnings growth with certain value principles can take it to the next level. Essentially, the GARP philosophy is the practice of finding stocks with above average growth rates and below average valuations.

Stocks with high growth rates can justify a higher than normal P/E ratio, but by dividing the P/E by the expected growth rate (PEG ratio), we want to make sure that it is within reason. While there are no strict criteria to abide by, the rule of thumb is to find a PEG ratio of 1.0 or less.

Stocks that Make the Grade

Here are a few examples of stocks that have above average growth rates, trade at a discount and have a Zacks #2 Rank (Buy) or better.

Datalink (Nasdaq: DTLK) designs, installs and supports data centers for companies.

Shares are a Zacks #1 Rank (Strong Buy) thanks the last earnings surprise and subsequent earnings revisions. This year's consensus jumped 16 cents to $0.56 per share. That is an expected growth rate of 47%. Next year's forecasts are averaging $0.61, up 16 cents for a growth rate near 10%.

DTLK is trading at nearly 17 times forward estimates, but have a PEG ratio of 0.9 thank to a 20% long-term growth rate.

Cabela's Inc. (NYSE: CAB) is a specialty retailer focusing on hunting, fishing, camping and other outdoor activities. The company has a well established catalog business as well as a growing number of retail outlets. Shares currently have a Zacks #1 Rank (Strong Buy).

Estimates for the full year are up 7 cents in the past couple of months, to $2.01. Next year's forecasts are averaging $2.30, up a dime. In 2010 Cabela's earned $1.68, so the projected growth rates are now 20% and 14%, respectively.

Given these earnings estimates, shares are trading with a P/E of 11 times and a PEG at just 0.8. Both metrics showing a good value. Additionally, CAB is going for just 0.5 times sales and 1.3 times book value.

Team, Inc. (Nasdaq: TISI) provides industrial services for high-temperature and high-pressure piping systems and vessels. Most customers are in the refining, pipeline and other heavy industrial industries.

Full-year estimates for fiscal 2012 are averaging $1.55, up 8 cents since the last quarterly report. Forecasts for fiscal 2013 are up 9 cents, to $1.80. If these levels are met the annual growth rates will be 26% and 17%, respectively. The forward P/E is about 16 times, but with 42% long-term growth rate the PEG is only 0.4.

Rocky Brands, Inc. (Nasdaq: RCKY) makes footwear and apparel under several brand names including Rocky, Durango and licenses brands like Michelin. Styles range from western to work boots. RCKY is another Zacks #1 Rank (Strong Buy).

Analysts raised full-year projections for both this year and 2012 on the latest earnings surprise. The 2011 Zacks Consensus Estimate is up a dime, to account for the surprise, putting the expected growth rate at 24%.

Estimates for 2012 are also up 10 cents, to $1.71, giving Rocky Brands a 12% expected growth rate. Thanks to the rising estimates and sell off, the valuations have gotten pretty enticing.

The forward P/E is at just 7 times and the PEG is at 0.7. Shares are going for 0.33 times sales and just under book value.

Penn National Gaming (Nasdaq: PENN) owns and operates gaming and racing facilities, focusing on slot machines. The company operates 26 facilities and is in the process of developing 2 more.

Given the continually improving performance, analysts began raising their estimates on the last quarterly report. Full-year estimate for 2011 are now averaging $2.03, up 32 cents and calling for a very strong finish to the year. Next year's Zacks Consensus Estimate is up 41 cents, to $2.23. These elevated estimates put annual growth rates at 28% and 10%, respectively. The 21% long-term growth rate and P/E of 19 times give PENN a solid 0.9 PEG ratio.

Best of Both Worlds

There are plenty of people from both the value and growth camp that will vehemently argue their points on which is better. I say; why not capitalize on the best of both worlds?

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