Investors interested in stocks from the Manufacturing - Tools & Related Products sector have probably already heard of Stanley Black & Decker (SWK) and Lincoln Electric Holdings (LECO). But which of these two companies is the best option for those looking for undervalued stocks? 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.
Stanley Black & Decker has a Zacks Rank of #2 (Buy), while Lincoln Electric Holdings has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SWK has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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.
SWK currently has a forward P/E ratio of 14.99, while LECO has a forward P/E of 24.12. We also note that SWK has a PEG ratio of 1.12. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. LECO currently has a PEG ratio of 1.61.
Another notable valuation metric for SWK is its P/B ratio of 1.41. 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, LECO has a P/B of 10.02.
These are just a few of the metrics contributing to SWK's Value grade of B and LECO's Value grade of D.
SWK stands above LECO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SWK 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.
