Investors with an interest in Chemical - Diversified stocks have likely encountered both Cabot (CBT - Free Report) and 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.
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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Cabot and PPG Industries are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. Investors should feel comfortable knowing that CBT likely has seen a stronger improvement to its earnings outlook than PPG has recently. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
CBT currently has a forward P/E ratio of 13.61, while PPG has a forward P/E of 17.67. We also note that CBT has a PEG ratio of 1.24. 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. PPG currently has a PEG ratio of 2.11.
Another notable valuation metric for CBT is its P/B ratio of 3.09. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, PPG has a P/B of 5.32.
These are just a few of the metrics contributing to CBT's Value grade of B and PPG's Value grade of C.
CBT has seen stronger estimate revision activity and sports more attractive valuation metrics than PPG, so it seems like value investors will conclude that CBT is the superior option right now.