Investors looking for stocks in the Insurance - Property and Casualty sector might want to consider either Essent Group (ESNT) or Berkshire Hathaway B (BRK.B). But which of these two stocks presents investors with the better value opportunity right now? 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 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.
Essent Group and Berkshire Hathaway B are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ESNT 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 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.
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.
ESNT currently has a forward P/E ratio of 9.04, while BRK.B has a forward P/E of 24.37. We also note that ESNT has a PEG ratio of 2.78. 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. BRK.B currently has a PEG ratio of 3.48.
Another notable valuation metric for ESNT is its P/B ratio of 1.15. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, BRK.B has a P/B of 1.59.
These metrics, and several others, help ESNT earn a Value grade of B, while BRK.B has been given a Value grade of D.
ESNT has seen stronger estimate revision activity and sports more attractive valuation metrics than BRK.B, so it seems like value investors will conclude that ESNT is the superior 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.
