Investors interested in stocks from the Manufacturing - Tools & Related Products sector have probably already heard of Core & Main (CNM) and Lincoln Electric Holdings (LECO). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Core & Main has a Zacks Rank of #2 (Buy), while Lincoln Electric Holdings has a Zacks Rank of #3 (Hold) right now. This means that CNM's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
CNM currently has a forward P/E ratio of 13.86, while LECO has a forward P/E of 22.94. We also note that CNM has a PEG ratio of 1.47. 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. LECO currently has a PEG ratio of 1.53.
Another notable valuation metric for CNM is its P/B ratio of 3.98. 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, LECO has a P/B of 9.03.
Based on these metrics and many more, CNM holds a Value grade of B, while LECO has a Value grade of D.
CNM is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that CNM is likely the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).