Investors interested in stocks from the Manufacturing - Farm Equipment sector have probably already heard of Agco (AGCO - Free Report) and Deere (DE - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, both Agco and Deere are sporting a Zacks Rank of # 1 (Strong Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
AGCO currently has a forward P/E ratio of 18.74, while DE has a forward P/E of 28.35. We also note that AGCO has a PEG ratio of 2.16. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. DE currently has a PEG ratio of 3.47.
Another notable valuation metric for AGCO is its P/B ratio of 2.01. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, DE has a P/B of 5.11.
These metrics, and several others, help AGCO earn a Value grade of B, while DE has been given a Value grade of F.
Both AGCO and DE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that AGCO is the superior value option right now.