Investors looking for stocks in the Banks - Midwest sector might want to consider either Old Second Bancorp (OSBC - Free Report) or Commerce Bancshares (CBSH - 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Old Second Bancorp and Commerce Bancshares are both sporting a Zacks Rank of # 2 (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. However, value investors will care about much more than just this.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
OSBC currently has a forward P/E ratio of 13.17, while CBSH has a forward P/E of 17.94. We also note that OSBC has a PEG ratio of 1.88. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. CBSH currently has a PEG ratio of 1.95.
Another notable valuation metric for OSBC is its P/B ratio of 2.12. 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, CBSH has a P/B of 2.70.
These metrics, and several others, help OSBC earn a Value grade of B, while CBSH has been given a Value grade of C.
Both OSBC and CBSH are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that OSBC is the superior value option right now.