Investors looking for stocks in the Manufacturing - Farm Equipment sector might want to consider either Alamo Group (ALG) or Deere (DE). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Alamo Group has a Zacks Rank of #2 (Buy), while Deere has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that ALG likely has seen a stronger improvement to its earnings outlook than DE has recently. 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ALG currently has a forward P/E ratio of 14.83, while DE has a forward P/E of 32.80. We also note that ALG has a PEG ratio of 0.93. 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. DE currently has a PEG ratio of 2.53.
Another notable valuation metric for ALG is its P/B ratio of 1.64. 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, DE has a P/B of 5.9.
These metrics, and several others, help ALG earn a Value grade of A, while DE has been given a Value grade of D.
ALG 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 ALG is likely the superior value option right now.
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Deere & Company (DE) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
