WHAT ARE WE LOOKING FOR?
Let's look for stocks that are trading at a discount to historical valuations. We'll use Thomson Reuters ONE's Stock Reports Plus, a portfolio management tool for institutional investors. What this tool will do is allow us to compare forward price-to-earnings ratios with average PEs of the past five years. We'll look at PEs for Canadian stocks with market caps greater than $1-billion.
WHAT DID WE FIND OUT?
This screen should be a starting point for more research. For instance, Research In Motion might be an interesting name on this list for some investors.
RIM has traded in the high 40 times forward earnings at several points in the last year, while also trading below 10 times at points such as last fall. So it is cheap now, but has been cheaper.
The stock's trailing PE is a 47-per-cent discount to its five-year average and its price to sales is a 65-per-cent discount to its five-year average. Analysts are expecting earnings growth of 27 per cent for fiscal 2010 and 17 per cent for fiscal 2011.
The market is clearly concerned that RIM's growth is slowing. It's five-year average earnings growth is more than 50 per cent, so 17 per cent is well below average. But if you believe growth is going to pick up then you aren't paying a lot for the stock based on its historic valuation.