One way to measure the upside potential of a stock is with the PEG ratio, which takes into account both the traditional value metric of the price-to-earnings multiple and analyst consensus for earnings growth rates. While analysts aren’t always correct, this at least results in a quantitative metric which can be used to screen stocks. We can also look for stocks with low PEG ratios among hedge funds’ top picks; we maintain a database of 13F filings as part of our work developing investment strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). We looked at the top picks from Tiger Cub fund Tiger Global and here are five of their holdings with low PEG ratios (or see the full list of stocks Tiger Global reported owning):
The fund was selling some of its shares of Apple Inc. (NASDAQ:AAPL) during the quarter, but it still included the tech company as its largest position by market value. Apple Inc. (NASDAQ:AAPL) had lost its place as the most popular stock among hedge funds to American International Group Inc (NYSE:AIG) during Q4 (find more of hedge funds’ most popular stocks) and the share price has fallen 23% in the last year as investors become convinced that lower margins will drive a decrease in net income. This has brought Apple Inc. (NASDAQ:AAPL)’s valuation to 10 times trailing earnings, while the sell-side is still expecting some earnings growth.
Tiger Global also cut its stake in Russian search engine and Internet portal Yandex NV (NASDAQ:YNDX) yet had over 15 million shares in its portfolio. The company has been reporting good financial results recently, with revenue up 37% and earnings rising 27% in its most recent quarter compared to the same period in the previous year. Yandex’s trailing P/E is high but as long as it continues improving at these rates it would qualify as a growth stock. We would note that Yandex’s stock is highly sensitive to movements in broader market indices at a beta of 2.9.