Investors looking for stocks in the Medical - Products sector might want to consider either Zimmer Biomet (ZBH - Free Report) or Medtronic (MDT - 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.
Right now, Zimmer Biomet is sporting a Zacks Rank of #2 (Buy), while Medtronic has a Zacks Rank of #3 (Hold). This means that ZBH's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle 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 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.
ZBH currently has a forward P/E ratio of 18.97, while MDT has a forward P/E of 21.54. We also note that ZBH has a PEG ratio of 2.67. 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. MDT currently has a PEG ratio of 2.93.
Another notable valuation metric for ZBH is its P/B ratio of 2.62. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, MDT has a P/B of 3.19.
These are just a few of the metrics contributing to ZBH's Value grade of B and MDT's Value grade of C.
ZBH is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ZBH is likely the superior value option right now.