Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of Regal Beloit (RBC) and II-VI (IIVI). But which of these two stocks presents investors with the better value opportunity right now? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Regal Beloit is sporting a Zacks Rank of #1 (Strong Buy), while II-VI has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that RBC is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
RBC currently has a forward P/E ratio of 13.87, while IIVI has a forward P/E of 32.67. We also note that RBC has a PEG ratio of 1.39. 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. IIVI currently has a PEG ratio of 1.92.
Another notable valuation metric for RBC is its P/B ratio of 1.49. 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, IIVI has a P/B of 2.94.
Based on these metrics and many more, RBC holds a Value grade of A, while IIVI has a Value grade of C.
RBC 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 RBC is likely the superior value option right now.
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