Investors looking for stocks in the Chemical - Diversified sector might want to consider either Methanex (MEOH - Free Report) or PPG Industries (PPG - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Methanex is sporting a Zacks Rank of #1 (Strong Buy), while PPG Industries has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that MEOH likely has seen a stronger improvement to its earnings outlook than PPG has recently. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
MEOH currently has a forward P/E ratio of 11.06, while PPG has a forward P/E of 16.28. We also note that MEOH has a PEG ratio of 0.74. 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. PPG currently has a PEG ratio of 1.81.
Another notable valuation metric for MEOH is its P/B ratio of 3.13. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, PPG has a P/B of 4.64.
These metrics, and several others, help MEOH earn a Value grade of A, while PPG has been given a Value grade of C.
MEOH is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that MEOH is likely the superior value option right now.