Investors interested in Financial - Investment Management stocks are likely familiar with Legg Mason (LM) and T. Rowe Price (TROW). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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 Legg Mason and T. Rowe Price are holding a Zacks Rank of # 1 (Strong 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 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.
LM currently has a forward P/E ratio of 13.36, while TROW has a forward P/E of 14.10. We also note that LM has a PEG ratio of 1.01. 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. TROW currently has a PEG ratio of 1.48.
Another notable valuation metric for LM is its P/B ratio of 1.13. 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, TROW has a P/B of 4.13.
These are just a few of the metrics contributing to LM's Value grade of B and TROW's Value grade of D.
Both LM and TROW are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that LM is the superior value option right now.