Investors interested in Medical - Drugs stocks are likely familiar with Astellas Pharma Inc. (ALPMY) and Zoetis (ZTS). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Astellas Pharma Inc. has a Zacks Rank of #2 (Buy), while Zoetis has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ALPMY is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.
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.
ALPMY currently has a forward P/E ratio of 14.81, while ZTS has a forward P/E of 32.41. We also note that ALPMY has a PEG ratio of 0.64. 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. ZTS currently has a PEG ratio of 2.70.
Another notable valuation metric for ALPMY is its P/B ratio of 2.44. 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, ZTS has a P/B of 18.48.
These metrics, and several others, help ALPMY earn a Value grade of A, while ZTS has been given a Value grade of C.
ALPMY 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 ALPMY is likely the superior value option right now.
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