Investors looking for stocks in the Financial - Investment Management sector might want to consider either Legg Mason (LM) or Apollo Global Management, LLC (APO). 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, Legg Mason has a Zacks Rank of #2 (Buy), while Apollo Global Management, LLC has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that LM has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
LM currently has a forward P/E ratio of 10.94, while APO has a forward P/E of 17.59. We also note that LM has a PEG ratio of 0.83. 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. APO currently has a PEG ratio of 1.03.
Another notable valuation metric for LM is its P/B ratio of 0.92. 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, APO has a P/B of 4.45.
Based on these metrics and many more, LM holds a Value grade of A, while APO has a Value grade of C.
LM has seen stronger estimate revision activity and sports more attractive valuation metrics than APO, so it seems like value investors will conclude that LM is the superior option right now.