Zacks Investment Ideas Feature Highlights: Deere, Apple, National Oilwell Varco, Norfolk Southern and CF Industries

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Dec 05, 2011, 09:30 ET

CHICAGO, Dec. 5, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Deere (NYSE: DE), Apple (Nasdaq: AAPL), National Oilwell Varco (NYSE: NOV), Norfolk Southern (NYSE: NSC) and CF Industries (NYSE: CF).

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5 Stocks with Magic PEGs

What if you could find a stock that had both value and growth? That would be a stock that had great potential. Some investors consider companies with both value and growth to have the magical combination.

But what does the "magical combination" mean, exactly?

Value investors have long looked to the price-to-earnings ratio as a means to finding value stocks. We all know that the lower a P/E ratio, the cheaper the stock.

However, Benjamin Graham, long considered to be the "father" of value investing, found that a low price-to-earnings ratio wasn't enough to unearth the true undervalued companies.

Using PEG to Find Top Stocks

To find the true undervalued stocks, Graham combined the low price-to-earnings ratios with the power of growth by using the PEG ratio. The PEG ratio is calculated by taking the price-to-earnings (P/E) ratio and dividing it by the growth rate.

Normally, a stock with a PEG ratio under 1.0 is considered a magical combination: a stock with both value and the sometimes illusive growth.

Recently, with stocks selling off, some companies that had only the growth component, now also have the value component.

When a low PEG ratio is combined with the powerful Zacks Rank, it makes the magical combination of growth and value even more explosive.

5 Stocks With Magical PEGs

1. Deere & Company
2. Apple
3. National Oilwell Varco
4. Norfolk Southern
5. CF Industries

1. Deere & Company

Deere (NYSE: DE) makes agriculture and construction equipment for customers around the globe. The 174-year old company just reported a record fiscal 2011. Who doesn't know its famous green tractors?

PEG: 0.7
Expected EPS Growth for Fiscal 2012: 16.7%
Zacks #2 Rank (buy)

Shares have pulled back in recent months on worries of a global economic slowdown. That's created a buying opportunity.

2. Apple Corporation

Apple (Nasdaq: AAPL) needs no introduction. Analysts expect the company to have a very good holiday season on the strength of the iPhone and iPad.

PEG: 0.5
Expected EPS Growth for Fiscal 2012: 25%
Zacks #2 Rank (buy)

Since Steve Jobs death in October, and its first earnings miss in years, shares have retreated. This is a rare chance to buy a tech stock with both value and growth (not to mention a cash hoard that could bail out several European countries.)

3. National Oilwell Varco, Inc.

National Oilwell Varco (NYSE: NOV) makes equipment and components used in oil and gas drilling. Think "drill, baby, drill."

In the third quarter, the Rig Technology segment had a record $3.9 billion in new orders, including a single $1.5 billion order for 7 drillship packages which was its largest order ever.

PEG: 0.9
Expected EPS Growth for 2012: 25%
Zacks #2 Rank (buy)

Shares rebounded after the summer sell off but are still under the recent multi-year highs.

4. Norfolk Southern Corporation

Norfolk Southern (NYSE: NSC) operates a railroad on 20,000 miles of track in 22 states and D.C. It is heavily concentrated in the ports of the East Coast and is a big transporter of coal and other industrial goods.

PEG: 0.9
Expected EPS Growth for 2012: 12%
Zacks #2 Rank (buy)

The railroads have been hot. Norfolk Southern added about 4000 employees this year and expects to hire another 2600 in 2012.

Its shares have also been hot. They retreated in the summer sell-off but have since regained the multi-year highs. But even at the highs, NSC has a forward P/E of just 14.

5. CF Industries Holdings Inc.

CF Industries (NYSE: CF) is the second largest nitrogen fertilizer producer in the world. With farmers cashing in on record incomes this year, and commodity prices remaining elevated, it's not surprising that CF's earnings exploded this year. EPS is expected to rise by 162% in 2011.

Yet analysts are nervous that growth has peaked as earnings are expected to be, essentially, flat in 2012.

PEG: 0.5
Expected EPS Growth for 2012: 2%
Zacks #2 Rank (buy)

Shares have been on a roller coaster the past few months. Yet they continue to be dirt cheap as investors nervously ponder 2012. CF has a forward P/E of only 6.2.

Good Brands That Have Both Value and Growth

It's easy to use the PEG ratio and the Zacks Rank to find companies that have the magical combination.

Right now, it's an embarrassment of riches to have so many big time brands with both attractive valuations and growth. These five companies have collectively been around for decades yet are still producing tremendous growth.

The PEG ratio is just one of many stock picking strategies investors can deploy. But for value investors, it's an important tool to add to your arsenal.

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