In his latest column for Forbes.com, Validea CEO John Reese takes a look at how to go beyond the P/E ratio when looking for cheap stocks.
“P/E ratios are useful tool, but they are by no means the be-all and end-all when it comes to gauging the valuation and attractiveness of a stock. In fact, no single metric is,” Reese writes. “As Forbes’ own Kenneth Fisher has said, there are no silver bullets in the stock market.”
In the article, Reese looks at low-P/E stocks that also get approval from his Joseph Piotroski-inspired Guru Strategy. Piotroski, an accounting professor, developed a method for picking winning stocks that uses the book/market ratio, as well as nine accounting-based balance sheet tests.
“Keep in mind that stocks like these aren’t winning any popularity contests, and many have plenty of fear hovering over them,” Reese writes. “But their underlying fundamentals indicate that, over the long term, they’re good bets to do better than expected.” He looks at five low-P/E stocks that his Piotroski-inspired strategy is high on. Among them: job-seeker website company Monster Worldwide.