Currently, stock markets are struggling with several macroeconomic issues like the oil price slump, slow economic growth of China, the strengthening U.S. dollar and weakening energy markets. However, certain optimistic factors such as sound manufacturing data and declining unemployment rate reflect a positive outlook for the U.S. stock market. Nevertheless, since the broader market would remain volatile, investors must have a clear roadmap before selecting a stock.

Braving the Unpredictability

We believe value investment can be very rewarding as the stocks are less risky. Value investing allows investors to buy cheap stocks with high returns, solid outlook and growth potential.

How to Pick Value Stocks?

Value stocks with relatively low price/earnings to growth ratio (PEG) ratio than peers should be considered. While price/earnings (P/E) ratio indicates a company’s earnings potentiality; PEG ratio reflects the optimism of the market regarding a company’s growth expectations. It indicates the price a stock holds for each unit of earnings growth.

A stock with a low PEG ratio is actually an undervalued stock, which means that investors are offering less for the stock despite robust earnings per share (EPS) growth.

However, spotting such stocks can be a daunting task.

Zacks Ideology

It is vital to consider the growth prospects of a value stock. Investors should focus on promising stocks that haven’t attracted attention yet and can be bought at a discount. Investors can add small cap stocks with low PEG ratios to their portfolios to ensure solid gains. Small companies, chiefly due to lack of investors’ attention, often trade at lower prices than the strength of their financial fundamentals deserve. This disparity offers a marvelous opportunity for investors.

We have zeroed-in on four stocks that sport a Zacks Rank #1 (Strong Buy), have a PEG ratio below 1 and possesses market capitalization below $1 billion.

Our Picks

Acacia Research Corporation (ACTG - Snapshot Report) along with its business subsidiaries licenses, develops, invests and enforces unique patented technologies in the U.S.

Zacks Rank: #1
PEG Ratio: 0.62
Market Capitalization: $191.74 million

CalAmp Corp. (CAMP - Snapshot Report) offers wireless communication solutions for variable applications in the global forum.

Zacks Rank: #1
PEG Ratio: 0.70
Market Capitalization: $629.36 million

Renewable Energy Group, Inc. (REGI - Snapshot Report) manufactures and markets renewable chemicals and biofuels in the U.S.

Zacks Rank: #1
PEG Ratio: 0.29
Market Capitalization: $397.17 million

Sucampo Pharmaceuticals, Inc. (SCMP - Analyst Report) is a leading biopharmaceutical company that focuses on the development and research of specialized proprietary drugs used across the world.

Zacks Rank: #1
PEG Ratio: 0.44
Market Capitalization: $457.21 million