Investors looking for stocks in the Financial - Investment Bank sector might want to consider either Goldman Sachs (GS) or Morgan Stanley (MS). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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.
Currently, Goldman Sachs has a Zacks Rank of #2 (Buy), while Morgan Stanley has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that GS likely has seen a stronger improvement to its earnings outlook than MS has recently. 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.
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.
GS currently has a forward P/E ratio of 16.41, while MS has a forward P/E of 16.90. We also note that GS has a PEG ratio of 1.59. 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. MS currently has a PEG ratio of 1.86.
Another notable valuation metric for GS is its P/B ratio of 2.08. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, MS has a P/B of 2.4.
These metrics, and several others, help GS earn a Value grade of B, while MS has been given a Value grade of D.
GS 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 GS is likely the superior value option right now.
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The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report Morgan Stanley (MS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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