The PEG ratio takes into account both a stock’s P/E multiple and analyst expectations for future earnings growth, and therefore serves as one way to measure its upside potential rather than to only compare the stock’s valuation to trailing earnings (of course, analyst forecasts aren’t always correct). We like to look for stocks with low PEG ratios in the portfolios of top investors such as billionaire Andreas Halvorsen’s hedge fund Viking Global (we track these funds’ portfolios through quarterly 13F filings, and also use this information to help us develop investing strategies- we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). Read on for our quick take on the five largest positions in Viking’s portfolio as of the end of March with five-year PEG ratios of 1.0 or lower (or see the full list of stocks the fund reported owning).
Halvorsen increased his stake in Michael Kors Holdings Ltd (NASDAQ:KORS) to a total of over 12 million shares. Kors is a high growth company, with revenue rising 57% in the fourth quarter of its most recent fiscal year (which ended in March) versus a year earlier and earnings rising over 130%. The market is pricing in some future growth at a trailing P/E of 32, but analysts are expecting strong enough performance over the next several years that the PEG ratio falls below 1. Billionaire Stephen Mandel’s Lone Pine Capital reported a position of 8.1 million shares in its own 13F (check out Mandel’s stock picks).
The fund had 8.6 million shares of QUALCOMM, Inc. (NASDAQ:QCOM) in its portfolio at the beginning of April. QUALCOMM, Inc. (NASDAQ:QCOM) had been one of the ten most popular stocks among hedge funds during the first quarter of this year (see the full top ten list) and it does feature an attractive combination of high growth and cheap pricing. Revenue and pretax income have been up over 20% from a year ago, going by recent reports, and the stock carries trailing and forward earnings multiples of 17 and 12 respectively. We’d be interested in looking into QUALCOMM, Inc. (NASDAQ:QCOM) as a potential “growth at a reasonable price” stock.