Low P/E stocks: Are they trash or are they treasure?

Some Lowest P/E Stocks

LTKM 3.02
KUMPULAN FIMA 4.06
MEASAT GLOBAL 4.54
COASTAL 5.31
AJIYA 5.40
KLCC PROP 5.76
PANTECH 5.87
DXN 6.15
POH KONG 6.22

The above was posted on 25th January 2010.


There are reasons that stocks sink to a discount. 

Low PE stocks may have:

• 
  
  high risk earnings or
• 
  
  low growth.

Buying discounted shares doesn't always end happily, but it often does.

Nevertheless, if earnings gains keep improving, so should the P/E.


LOW P/E stocks don't just do more on the upside; they behave better when the market is falling.


Low PE stocks have little anticipation or expectation built into their price. Therefore, any improvement in performance is likely to boost the attention they get, while they suffer little if their results don't meet the Market's already low expectation.


The investor's call now is to decide 

• whether these groups can stage yet another comeback, or 
• whether they are on the slow train to oblivion.

The challenge of course, is separating the stocks 

• that are unfairly being beaten down because of overreaction 
• from those that deserve their low prices.

The graph below depicts the KLCI index.  The KLCI has risen since January 2010, lifting the prices of many stocks with it.




It should be interesting to see what have happened to these above counters since.





Wright Quality Rating: LBD8 Rating Explanations




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The last 3 months and 5 years charts were shown for each of the above stocks.


Looking at the last 3 months price action:


Prices trending upwards:  LTKM, KFima, Measat, Coastal and Ajiya  (That's not a bad bet for investors willing to wait for multiple expansion)
Prices moving sideways:  KLCCP, Pantech, DXN
Prices trending downwards:  Pohkong


A rising tide (market) lifts all boats (stocks).  Also, there are always a lot of casualties after a bull market.  Knowing that the bull market is a more dangerous period than a bear market, what can we learn, if any, from these price behaviours?


John Neff wrote, "Indifferent financial performance by low PE companies seldom exacts a penalty. Hints of improved prospects trigger fresh interest. If you buy stocks when they are out of favour and unloved, and sell them into strength when other investors recognize their merits, you'll often go home with handsome gains."


If you have any last doubts about low P/E investing, consider this:The history of low P/E investing makes it clear that you stand to make money twice. 

• First, you win when companies start to earn bigger profits and share them with you by way of fatter dividends and rising share prices. 
• This will wake up all those investors who've been sleeping on the sidelines. They'll start buying, the multiple will increase, and presto!--you've won again. 

Related posts:

Low PE stocks may have high-risk earnings or low growth.

Low Price-Earnings Investor

Finding great values in low P/E stocks that are set to rise