FAF vs. SIGI: Which Stock Should Value Investors Buy Now?

Investors interested in Insurance - Property and Casualty stocks are likely familiar with First American Financial (FAF) and Selective Insurance (SIGI). 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.

First American Financial has a Zacks Rank of #2 (Buy), while Selective Insurance has a Zacks Rank of #3 (Hold) right now. This means that FAF's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

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.

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.

FAF currently has a forward P/E ratio of 11.76, while SIGI has a forward P/E of 17.40. We also note that FAF has a PEG ratio of 1.07. 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. SIGI currently has a PEG ratio of 1.64.

Another notable valuation metric for FAF is its P/B ratio of 1.60. 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, SIGI has a P/B of 2.23.

These are just a few of the metrics contributing to FAF's Value grade of B and SIGI's Value grade of D.

FAF 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 FAF is likely the superior value option right now.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.