Investors interested in stocks from the Medical - Biomedical and Genetics sector have probably already heard of Exelixis (EXEL - Free Report) and Illumina (ILMN - 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Exelixis is sporting a Zacks Rank of #2 (Buy), while Illumina has a Zacks Rank of #3 (Hold). This means that EXEL's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
EXEL currently has a forward P/E ratio of 27.39, while ILMN has a forward P/E of 34.72. We also note that EXEL has a PEG ratio of 1.41. 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. ILMN currently has a PEG ratio of 1.74.
Another notable valuation metric for EXEL is its P/B ratio of 2.76. 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, ILMN has a P/B of 7.58.
These are just a few of the metrics contributing to EXEL's Value grade of B and ILMN's Value grade of C.
EXEL 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 EXEL is likely the superior value option right now.