Investors interested in stocks from the Financial - Investment Management sector have probably already heard of Legg Mason (LM - Free Report) and BlackRock (BLK - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Legg Mason has a Zacks Rank of #2 (Buy), while BlackRock has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that LM has an improving earnings outlook. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
LM currently has a forward P/E ratio of 17.06, while BLK has a forward P/E of 19.52. We also note that LM has a PEG ratio of 1.49. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. BLK currently has a PEG ratio of 1.95.
Another notable valuation metric for LM is its P/B ratio of 1.15. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, BLK has a P/B of 2.66.
These metrics, and several others, help LM earn a Value grade of B, while BLK has been given a Value grade of D.
LM has seen stronger estimate revision activity and sports more attractive valuation metrics than BLK, so it seems like value investors will conclude that LM is the superior option right now.