Investors interested in stocks from the Food - Miscellaneous sector have probably already heard of Kellogg (K - Free Report) and Campbell Soup (CPB - 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, both Kellogg and Campbell Soup are holding a Zacks Rank of # 2 (Buy). 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 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.
K currently has a forward P/E ratio of 17.47, while CPB has a forward P/E of 19.33. We also note that K has a PEG ratio of 2.91. 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. CPB currently has a PEG ratio of 3.25.
Another notable valuation metric for K is its P/B ratio of 7.31. 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, CPB has a P/B of 11.82.
These are just a few of the metrics contributing to K's Value grade of B and CPB's Value grade of C.
Both K and CPB are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that K is the superior value option right now.