Investors looking for stocks in the Diversified Operations sector might want to consider either Sumitomo Corp. (SSUMY) or Honeywell International Inc. (HON). 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 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.
Sumitomo Corp. and Honeywell International Inc. are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that SSUMY is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
SSUMY currently has a forward P/E ratio of 13.44, while HON has a forward P/E of 22.01. We also note that SSUMY has a PEG ratio of 1.76. 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. HON currently has a PEG ratio of 3.31.
Another notable valuation metric for SSUMY is its P/B ratio of 1.77. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, HON has a P/B of 10.01.
These metrics, and several others, help SSUMY earn a Value grade of B, while HON has been given a Value grade of D.
SSUMY has seen stronger estimate revision activity and sports more attractive valuation metrics than HON, so it seems like value investors will conclude that SSUMY is the superior option right now.
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Sumitomo Corp. (SSUMY): Free Stock Analysis Report
Honeywell International Inc. (HON): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).