In today’s market, cheap stocks are hard to find. The Dow Jones Industrial Average recently set an all-time closing high, and the S&P 500 is not far behind. As a result, value investors who seek meaningful margins of safety from their stocks are frustrated by the lack of bargains available. If you set out to not only find cheap stocks, but cheap stocks that are also growth stocks, you’d have a tough task ahead of you. Fear not, fellow investors: there are a few diamonds in the rough.
Growth that shoots the lights out
Chevron Corporation (NYSE:CVX) is a $233 billion energy giant, which may make you skeptical of its growth potential. You might be surprised to learn that Chevron’s earnings have skyrocketed in the aftermath of the most recent recession. As global economies, particularly those among the emerging nations, resumed their nearly unquenchable thirst for energy, Chevron Corporation (NYSE:CVX) delivered. Over the past three years, Chevron has grown diluted earnings per share by 37%, compounded annually.
DIRECTV (NASDAQ:DTV) provides digital entertainment in the United States and Latin America. Even though cable and media are highly competitive industries, DirecTV’s financial performance over the past few years speaks for itself. The company has grown its diluted earnings per share at an astounding 69%, compounded annually since 2009.
DIRECTV (NASDAQ:DTV) has the subscriber numbers to back up its fantastic performance. The company added 761,000 net subscribers in the most recent quarter. Particular strength came from DirecTV’s Latin American operations, where the company added 2.4 million net subscribers during 2012.
Of course, it’s tough to watch television without electricity, and that’s where PPL Corporation (NYSE:PPL) comes in. PPL provides electricity in the United States and the United Kingdom. While an electric utility certainly doesn’t sound exciting, there’s a fantastic growth story here underneath the surface. PPL has grown its diluted earnings per share by 34%, compounded annually since 2009.
Growth at a (very) reasonable price
Making matters even better, each of these companies is attractively priced, when compared to the broader market. Chevron Corporation (NYSE:CVX) trades at only nine times its 2012 diluted earnings per share. Meanwhile, both DIRECTV (NASDAQ:DTV) and PPL trade for trailing price-to-earnings ratios of less than 12. The S&P 500 currently sports a P/E ratio in the high teens.
Not only are these companies priced attractively, but they each happen to be extremely shareholder-friendly stocks. Chevron Corporation (NYSE:CVX) has one of the best dividends in the energy sector, having increased its shareholder distribution for 25 years in a row. Even more impressively, 2012 marked the company’s 100th year of continuous dividend payments to its shareholders.
DIRECTV (NASDAQ:DTV) doesn’t pay a dividend, but it does buyback boatloads of its shares. The company bought back more than $5 billion of its shares in 2012, and in conjunction with its annual earnings report, announced it had authorized a new $4 billion share buyback plan going forward.
PPL, meanwhile, does hold true to one aspect of a utility’s traditional reputation: paying hefty dividends to shareholders. The stock yields 4.9% at recent prices and has increased its dividend in 11 of the last 12 years; the new dividend rate of $1.47 per share annualized reflects a 177% increase over that 12-year period.
All the makings of true winners
The stocks presented here offer the tantalizing combination of extremely high EPS growth over the last three years in addition to tempting valuations. These three companies have done an admirable job digging themselves out of the economic trough caused by the Great Recession, yet aren’t being sufficiently rewarded for their success.
These stocks’ profits are growing like weeds, and in turn they are returning those profits to shareholders through a mixture of dividends and/or share repurchases. Add to this the fact that each of these stocks trades for extremely attractive valuations, and the conclusion is clear: if you’re an investor intrigued by the prospect of high-growth stocks trading on the cheap, give these a closer look.
The article Three Stocks with Low P/E Ratios and High Growth Rates originally appeared on Fool.com and is written by Robert Ciura.
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