Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of Rexnord (RXN) and A.O. Smith (AOS). But which of these two companies is the best option for those looking for undervalued stocks? 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.
Rexnord has a Zacks Rank of #2 (Buy), while A.O. Smith has a Zacks Rank of #4 (Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that RXN has an improving earnings outlook. But this is only part of the picture 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
RXN currently has a forward P/E ratio of 14.87, while AOS has a forward P/E of 17.52. We also note that RXN has a PEG ratio of 0.86. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. AOS currently has a PEG ratio of 1.55.
Another notable valuation metric for RXN is its P/B ratio of 2.39. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, AOS has a P/B of 4.74.
These are just a few of the metrics contributing to RXN's Value grade of A and AOS's Value grade of C.
RXN sticks out from AOS in both our Zacks Rank and Style Scores models, so value investors will likely feel that RXN is the better option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.