Investors looking for stocks in the Computer- Storage Devices sector might want to consider either Western Digital (WDC - Free Report) or NetApp (NTAP - 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Both Western Digital and NetApp have a Zacks Rank of # 1 (Strong Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
WDC currently has a forward P/E ratio of 5.95, while NTAP has a forward P/E of 21.72. We also note that WDC has a PEG ratio of 0.31. 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. NTAP currently has a PEG ratio of 1.81.
Another notable valuation metric for WDC is its P/B ratio of 2.10. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, NTAP has a P/B of 9.81.
Based on these metrics and many more, WDC holds a Value grade of A, while NTAP has a Value grade of C.
Both WDC and NTAP are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that WDC is the superior value option right now.