Investors interested in Automotive - Original Equipment stocks are likely familiar with BorgWarner (BWA) and Ferrari (RACE). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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.
BorgWarner has a Zacks Rank of #2 (Buy), while Ferrari has a Zacks Rank of #5 (Strong Sell) right now. 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. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
BWA currently has a forward P/E ratio of 9.44, while RACE has a forward P/E of 33.39. We also note that BWA has a PEG ratio of 0.93. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. RACE currently has a PEG ratio of 3.90.
Another notable valuation metric for BWA is its P/B ratio of 1.65. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, RACE has a P/B of 20.12.
Based on these metrics and many more, BWA holds a Value grade of A, while RACE has a Value grade of F.
BWA sticks out from RACE in both our Zacks Rank and Style Scores models, so value investors will likely feel that BWA is the better option right now.
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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.
