GD vs. NOC: Which Stock Is the Better Value Option?

Investors interested in stocks from the Aerospace - Defense sector have probably already heard of General Dynamics (GD) and Northrop Grumman (NOC). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

General Dynamics and Northrop Grumman are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that GD likely has seen a stronger improvement to its earnings outlook than NOC 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

GD currently has a forward P/E ratio of 22.39, while NOC has a forward P/E of 23.86. We also note that GD has a PEG ratio of 2.09. 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. NOC currently has a PEG ratio of 6.12.

Another notable valuation metric for GD is its P/B ratio of 3.89. 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, NOC has a P/B of 5.6.

These metrics, and several others, help GD earn a Value grade of B, while NOC has been given a Value grade of C.

GD 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 GD is likely the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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