Investors with an interest in Insurance - Property and Casualty stocks have likely encountered both American Financial Group (AFG) and W.R. Berkley (WRB). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, both American Financial Group and W.R. Berkley are sporting a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one factor that value investors are interested in.
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.
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.
AFG currently has a forward P/E ratio of 12.26, while WRB has a forward P/E of 26.22. We also note that AFG has a PEG ratio of 1.89. 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. WRB currently has a PEG ratio of 2.91.
Another notable valuation metric for AFG is its P/B ratio of 1.57. 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, WRB has a P/B of 2.36.
These metrics, and several others, help AFG earn a Value grade of A, while WRB has been given a Value grade of D.
Both AFG and WRB are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that AFG is the superior value option right now.