Investors interested in stocks from the Large Cap Pharmaceuticals sector have probably already heard of Pfizer (PFE) and Johnson & Johnson (JNJ). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Pfizer has a Zacks Rank of #2 (Buy), while Johnson & Johnson has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that PFE is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
PFE currently has a forward P/E ratio of 9.21, while JNJ has a forward P/E of 21.92. We also note that PFE has a PEG ratio of 1.84. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. JNJ currently has a PEG ratio of 2.48.
Another notable valuation metric for PFE is its P/B ratio of 1.83. 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, JNJ has a P/B of 7.17.
Based on these metrics and many more, PFE holds a Value grade of A, while JNJ has a Value grade of C.
PFE sticks out from JNJ in both our Zacks Rank and Style Scores models, so value investors will likely feel that PFE is the better option right now.
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Pfizer Inc. (PFE): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).