One of the biggest challenges in investing is finding stocks that combine the best of both worlds: the long-term upside of growth and the downside protection of solid fundamentals. That is the space where I like to hunt in the alleyway between value and growth, where stocks trade cheaply not because they are broken, but because no one is looking. For years, investors like Peter Lynch have pointed out that the price-to-earnings growth ratio, or PEG, is a useful way to find companies that are growing fast but are still cheap relative to that growth.
But as with any valuation metric, the PEG ratio alone is not enough. Cheap stocks are often cheap for good reasons.
