Investors interested in Automotive - Original Equipment stocks are likely familiar with BorgWarner (BWA) and Modine (MOD). But which of these two stocks presents investors with the better value opportunity right now? 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 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, BorgWarner is sporting a Zacks Rank of #2 (Buy), while Modine has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that BWA is likely seeing its earnings outlook improve to a greater extent. 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
BWA currently has a forward P/E ratio of 8.38, while MOD has a forward P/E of 33.05. We also note that BWA has a PEG ratio of 0.94. 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. MOD currently has a PEG ratio of 0.97.
Another notable valuation metric for BWA is its P/B ratio of 1.24. 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, MOD has a P/B of 8.37.
These metrics, and several others, help BWA earn a Value grade of A, while MOD has been given a Value grade of C.
BWA stands above MOD thanks to its solid earnings outlook, and based on these valuation figures, we also feel that BWA is the superior value option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
