Investors interested in stocks from the Medical - Products sector have probably already heard of Smith & Nephew (SNN) and Stryker (SYK). 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.
Currently, both Smith & Nephew and Stryker are holding a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one factor that value investors are interested in.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
SNN currently has a forward P/E ratio of 17.95, while SYK has a forward P/E of 27.37. We also note that SNN has a PEG ratio of 0.98. 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. SYK currently has a PEG ratio of 2.66.
Another notable valuation metric for SNN is its P/B ratio of 2.83. 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, SYK has a P/B of 6.66.
These metrics, and several others, help SNN earn a Value grade of B, while SYK has been given a Value grade of C.
Both SNN and SYK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SNN is 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.
