The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.
Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.
One stock to keep an eye on is First American Financial (FAF). FAF is currently sporting a Zacks Rank #1 (Strong Buy), as well as an A grade for Value. The stock is trading with P/E ratio of 11.43 right now. For comparison, its industry sports an average P/E of 26.12. FAF's Forward P/E has been as high as 15.32 and as low as 9.75, with a median of 11.61, all within the past year.
Another valuation metric that we should highlight is FAF's P/B ratio of 1.31. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 1.38. Within the past 52 weeks, FAF's P/B has been as high as 1.43 and as low as 1.08, with a median of 1.29.
Value investors also use the P/S ratio. The P/S ratio is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. FAF has a P/S ratio of 0.9. This compares to its industry's average P/S of 1.2.
Value investors will likely look at more than just these metrics, but the above data helps show that First American Financial is likely undervalued currently. And when considering the strength of its earnings outlook, FAF sticks out as one of the market's strongest value stocks.
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First American Financial Corporation (FAF): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).