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Medalist Funds That Hold Attractively Priced Stocks

These domestic-stock funds have portfolios with low P/E ratios.

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Everybody loves a bargain, but some fund managers love one more than others. Typically funds that invest in stocks selling at discounts are considered to be value funds. Their managers go hunting for stocks in the bargain bin, expecting that the companies will rebound from a temporary setback, sector downturn, or other factors that are causing them to sell for less than they are worth.

Some value-oriented fund managers look for companies that are trading at significant discounts to what they think they're worth; that's the approach the teams at Oakmark and Longleaf Partners, for example, as well as Morningstar's equity analysts use. Other value managers may start their process by screening for companies that are trading cheaply relative to some other measure, such as cash flow or earnings. The most commonly cited measure of relative value--price/earnings ratio, or P/E--can be calculated using trailing 12-month earnings or forward (projected) 12-month earnings. Although the former may be more precise given that trailing earnings are based on what has already happened, the latter is considered more useful in most cases because the price a stock sells for today is based on what the market thinks future earnings will look like, not past earnings. The downside to this approach is that future earnings are really just a calculated guess and could be incorrect. Nevertheless, Morningstar uses the forward-looking method for its P/E data calculations.

Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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