Investors looking for stocks in the Manufacturing – Electronics sector might want to consider either Eaton (ETN) or A.O. Smith (AOS). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Both Eaton and A.O. Smith have a Zacks Rank of # 2 (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. However, value investors will care about much more than just this.
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 highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ETN currently has a forward P/E ratio of 14.36, while AOS has a forward P/E of 22.75. We also note that ETN has a PEG ratio of 1.45. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. AOS currently has a PEG ratio of 1.88.
Another notable valuation metric for ETN is its P/B ratio of 1.89. 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, AOS has a P/B of 6.59.
These metrics, and several others, help ETN earn a Value grade of B, while AOS has been given a Value grade of C.
Both ETN and AOS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ETN is the superior value option right now.
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