“Growth at a reasonable price”, or “GARP”, is an investment strategy that looks to identify growing companies that are not trading at irrationally exuberant valuations. One of the most commonly used financial ratios is the “PEG Ratio”, which divides a company’s P/E ratio by its earnings growth rate (although the convention is that the growth rate is not expressed as a percentage, for simplicity, one must assume it is). For example, if a $100 stock has earnings of $6 per share, then its P/E ratio is $ 100 divided by $6, or ~16.7. If the company’s earnings are forecast to grow to $7.20/share in the following year, then its earnings growth rate is 20%. The PEG Ratio would be 16.7/20 = ~0.83. Companies with a PEG ratio of less than 1 are generally considered particularly attractive using this methodology. Finding “cheap” stocks even as the S & P 500 hits one fresh all-time high after another becomes increasingly appealing … and challenging. As one might expect, most large-cap stocks do not meet this criterion. A quick screen of the Russell 1000 index identifies only 200 companies that have a forward PEG Ratio of 1 or less. “Forward” in this case refers to the consensus estimates for earnings for the coming year, allowing the estimation of both the forward P/E Ratio and the growth rate by comparing the estimated earnings to those the company already reported in the prior year. Scanning that list of stocks reveals that many of them are seemingly “cheap” for a reason. For example, many “cyclical” stocks show up on the list. Cyclical companies may have attractive growth rates for the coming year, but the volatility of their underlying business makes it difficult to extrapolate that growth far into the future. Dell Technologies is one of the names that meets the criteria, or at least comes close. The average of FYE2027 adjusted EPS estimates is $11.05 per share (note that the company’s fiscal year ends in January, so FYE2027 is essentially calendar year 2026). With a forward P/E Ratio of just 12x earnings, Dell is trading at a substantial discount to the S & P 500 forward P/E of 25x. Dell earnings are expected to grow by almost 16% next year, and ~10.5% the year following. The S & P 500 has grown earnings at ~8.35% over the past 10 years. While Dell does not achieve a PEG Ratio of less than 1, it’s not far from it and is better than the S & P 500 overall. Although not typically part of the AI story, Dell is benefiting from the strength in IT spending, both generally and specifically in AI server orders. It is not the highest margin business in hardware, but the market is robust. Arguably, the biggest challenge for Dell is that its stock often appears undervalued. Over the past five years, Dell’s comps have traded at an average forward P/E of ~15.6x, whereas Dell’s has averaged 12.8x. Only modestly higher than it is now. Bounded on the low end by a relatively cheap valuation, and on the high end by a habit of being constantly underappreciated by investors, and with a relatively high implied volatility, Dell may present an opportunity to collect some options premium. Here are two potential moderately bullish approaches: If you already own the stock, or want to, consider a covered call such as the November $145s. The $145 calls are ~ $3.75, and the 52-week high for Dell is $147.66. By selling that call, one would be called out of the stock at a net price higher than the current one. $145 + $3.75 in options premium = $148.75. This would permit nearly 10% of potential capital appreciation in the shares in just under two months. A cash-covered put might interest those who are more interested in the yield opportunity, but seek a slightly lower entry point than the current stock price. For example, selling the November $125 puts at $5 provides a slightly higher standstill yield, and the downside is that one might potentially be “put to the stock” (compelled to buy it if assigned) at an effective price of ~$120, the $125 strike price less the nearly $5/share in premium collected. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
