Investors looking for stocks in the Chemical - Diversified sector might want to consider either Dow Inc. (DOW) or Air Products and Chemicals (APD). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Dow Inc. has a Zacks Rank of #1 (Strong Buy), while Air Products and Chemicals has a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that DOW likely has seen a stronger improvement to its earnings outlook than APD 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 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.
DOW currently has a forward P/E ratio of 12.87, while APD has a forward P/E of 21.07. We also note that DOW has a PEG ratio of 0.23. 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. APD currently has a PEG ratio of 2.44.
Another notable valuation metric for DOW is its P/B ratio of 1.45. 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, APD has a P/B of 3.41.
Based on these metrics and many more, DOW holds a Value grade of B, while APD has a Value grade of D.
DOW sticks out from APD in both our Zacks Rank and Style Scores models, so value investors will likely feel that DOW 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.
