BWA vs. RACE: Which Stock Should Value Investors Buy Now?

Investors interested in Automotive - Original Equipment stocks are likely familiar with BorgWarner (BWA) and Ferrari (RACE). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

BorgWarner has a Zacks Rank of #2 (Buy), while Ferrari has a Zacks Rank of #3 (Hold) right now. This means that BWA's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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.

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.

BWA currently has a forward P/E ratio of 9.57, while RACE has a forward P/E of 35.58. We also note that BWA has a PEG ratio of 0.94. 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. RACE currently has a PEG ratio of 4.16.

Another notable valuation metric for BWA is its P/B ratio of 1.57. 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, RACE has a P/B of 20.75.

These are just a few of the metrics contributing to BWA's Value grade of A and RACE's Value grade of D.

BWA 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 BWA 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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