Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of ABB (ABB - Free Report) and A.O. Smith (AOS - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
ABB has a Zacks Rank of #2 (Buy), while A.O. Smith has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ABB has an improving earnings 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.
ABB currently has a forward P/E ratio of 14.31, while AOS has a forward P/E of 25.66. We also note that ABB has a PEG ratio of 2.31. 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. AOS currently has a PEG ratio of 3.21.
Another notable valuation metric for ABB is its P/B ratio of 3.52. 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, AOS has a P/B of 5.57.
These metrics, and several others, help ABB earn a Value grade of B, while AOS has been given a Value grade of C.
ABB sticks out from AOS in both our Zacks Rank and Style Scores models, so value investors will likely feel that ABB is the better option right now.