Investors looking for stocks in the Medical - Biomedical and Genetics sector might want to consider either Celgene (CELG - Free Report) or Vertex Pharmaceuticals (VRTX - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Celgene and Vertex Pharmaceuticals are both sporting a Zacks Rank of # 2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture 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 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.
CELG currently has a forward P/E ratio of 8.89, while VRTX has a forward P/E of 40.90. We also note that CELG has a PEG ratio of 0.40. 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. VRTX currently has a PEG ratio of 1.82.
Another notable valuation metric for CELG is its P/B ratio of 8.25. 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, VRTX has a P/B of 9.23.
These are just a few of the metrics contributing to CELG's Value grade of B and VRTX's Value grade of D.
Both CELG and VRTX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that CELG is the superior value option right now.