Investors interested in stocks from the Chemical - Diversified sector have probably already heard of Dow Inc. (DOW) and Albemarle (ALB). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Dow Inc. and Albemarle are both sporting a Zacks Rank of #1 (Strong Buy) right now. 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.
DOW currently has a forward P/E ratio of 14.89, while ALB has a forward P/E of 15.19. We also note that DOW has a PEG ratio of 0.27. 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. ALB currently has a PEG ratio of 0.95.
Another notable valuation metric for DOW is its P/B ratio of 1.52. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ALB has a P/B of 2.62.
These are just a few of the metrics contributing to DOW's Value grade of B and ALB's Value grade of D.
Both DOW and ALB are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DOW is the superior value option right now.
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Dow Inc. (DOW): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).