Investors looking for stocks in the Automotive – Original Equipment sector might want to consider either BorgWarner (BWA) or Gentherm (THRM). But which of these two stocks is more attractive to value investors? We’ll need to take a closer look to find out.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Right now, BorgWarner is sporting a Zacks Rank of #2 (Buy), while Gentherm has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that BWA has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company’s fair value.
BWA currently has a forward P/E ratio of 11.03, while THRM has a forward P/E of 22.05. We also note that BWA has a PEG ratio of 1.42. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company’s expected EPS growth rate. THRM currently has a PEG ratio of 1.70.
Another notable valuation metric for BWA is its P/B ratio of 1.96. The P/B ratio pits a stock’s market value against its book value, which is defined as total assets minus total liabilities. For comparison, THRM has a P/B of 3.22.
These metrics, and several others, help BWA earn a Value grade of A, while THRM has been given a Value grade of C.
BWA has seen stronger estimate revision activity and sports more attractive valuation metrics than THRM, so it seems like value investors will conclude that BWA is the superior option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment