Investors with an interest in Chemical - Diversified stocks have likely encountered both Dow Inc. (DOW) and Air Liquide (AIQUY). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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.
Dow Inc. and Air Liquide are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. This means that DOW's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst 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 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.
DOW currently has a forward P/E ratio of 16.24, while AIQUY has a forward P/E of 26.60. We also note that DOW has a PEG ratio of 0.29. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. AIQUY currently has a PEG ratio of 2.97.
Another notable valuation metric for DOW is its P/B ratio of 1.66. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, AIQUY has a P/B of 4.03.
These metrics, and several others, help DOW earn a Value grade of B, while AIQUY has been given a Value grade of D.
DOW 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 DOW is likely the superior value 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.
