DO YOU MIND YOUR

Ps and Es? You ought to. After all, a stock's price/earnings (P/E) ratio essentially tells you how much earnings power you're buying for your buck. That's an important way to evaluate your holdings.

But P/Es aren't the only way to judge a stock. According to an award-winning 1994 study by Josef Lakonishok of the University of Illinois at Urbana-Champaign, Andrei Shleifer of Harvard University and Robert Vishny of the University of Chicago, using multiple screening variables has historically yielded greater results than using any one variable alone. With that in mind, we've wheeled in some more valuation gauges this week. Our New Value screen one of our Stock Screener's old standbys relies on a trio of ratios and other quality filters to find bargain share prices.

When judging stocks by their trailing P/E, one must by definition ignore shares of companies that lost money last year. For this screen, that meant starting with just 408 members of the benchmark Standard & Poor's 500, since 92 lost money during the past 12 months. Of those 408 stocks, we turned away those trading for more than the S&P median of 20.5 times trailing earnings per share. In one step, we were down to 204.

Next, we evaluated our surviving stocks in terms of their own peer groups. After all, airlines and drug companies face very different, industry-specific issues. So, we fished for value stocks that trade for less than their industry's price/sales and price/cash-flow ratios. By introducing a revenue gauge and a cash-flow gauge into the mix, we hoped to get a more complete view of our survivors' underlying fundamentals. Those two steps whittled our list of survivors to 58.

Those of you familiar with our weekly screening exercises know what's next: more quality filters. For one thing, we chucked out the heavy debtors specifically, those companies with long- and short-term debt obligations amounting to more than 50% of total invested capital. That left us with 23 names. Next, we demanded annual revenues that held steady or grew in the past year. With that demand, we were left with just 13 names.

This won't always be the case. You can check up on the latest results by selecting "New Value" from the "SmartMoney Screens" menu of our stock-screening tool

So what did we catch in our net this time? Most of our survivors came from the health-care, financial and tech sectors. And among them, there were a couple of couples that is, sets of stocks hailing from the same industries.

In the drug industry, Merck and Schering-Plough both look cheaper than their peers, based on price/earnings, price/sales and price/cash-flow ratios. But how do they fare in head-to-head competition? The results are mixed. The much-larger Merck wins out in terms of price/sales in other words, you theoretically buy into a larger cut of total revenues when you buy this stock. But your investment buys you more earnings power at its smaller peer, Schering Plough, which boasts healthier profit margins. Now, both companies face competitive pressures and patent expirations, which are dragging down their stock prices. But note that both pay out handsome dividends to shareholders. If you can afford more than one med, these two different value plays might compliment each other in a well-balanced portfolio.

Our other pair of survivors: computer-services companies Electronic Data Services and Computer Sciences. In a face-off between these two, there's really no contest. EDS looks cheaper based on earnings, cash flow and revenues. Furthermore, EDS pays investors quarterly dividends while Computer Sciences doesn't.

EDS has popped up on a number of SmartMoney value screens since its spectacular meltdown last September, when the company announced it would miss earnings expectations by a mile. In fact, the last time we ran this New Value screen, EDS survived with a stock price of $14.65. Since then, the stock has climbed 42% to Tuesday's close of $20.83. And compared with the S&P 500 and its own industry (which consists of 46 stock), EDS continues to look attractive.