Investors looking for stocks in the Tobacco sector might want to consider either Universal Corp. (UVV) or British American Tobacco (BTI). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Universal Corp. has a Zacks Rank of #2 (Buy), while British American Tobacco 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 UVV has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
UVV currently has a forward P/E ratio of 10.92, while BTI has a forward P/E of 12.28. We also note that UVV has a PEG ratio of 2.73. 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. BTI currently has a PEG ratio of 2.76.
Another notable valuation metric for UVV is its P/B ratio of 0.86. 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, BTI has a P/B of 1.79.
These are just a few of the metrics contributing to UVV's Value grade of B and BTI's Value grade of C.
UVV stands above BTI thanks to its solid earnings outlook, and based on these valuation figures, we also feel that UVV 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.
