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AOS vs. ABB: Which Stock Is the Better Value Option?

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Investors looking for stocks in the Manufacturing - Electronics sector might want to consider either A.O. Smith (AOS - Free Report) or ABB (ABB - 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.

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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, A.O. Smith has a Zacks Rank of #2 (Buy), while ABB has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that AOS has an improving earnings outlook. 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.

AOS currently has a forward P/E ratio of 18.68, while ABB has a forward P/E of 21.48. We also note that AOS has a PEG ratio of 2.08. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. ABB currently has a PEG ratio of 3.46.

Another notable valuation metric for AOS is its P/B ratio of 5.23. 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, ABB has a P/B of 5.32.

These metrics, and several others, help AOS earn a Value grade of B, while ABB has been given a Value grade of C.

AOS stands above ABB thanks to its solid earnings outlook, and based on these valuation figures, we also feel that AOS is the superior value option right now.

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