LYG vs. CM: Which Stock Is the Better Value Option?

Investors interested in stocks from the Banks - Foreign sector have probably already heard of Lloyds (LYG) and Canadian Imperial Bank (CM). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, Lloyds has a Zacks Rank of #2 (Buy), while Canadian Imperial Bank 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 LYG has an improving earnings 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.

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.

LYG currently has a forward P/E ratio of 10.46, while CM has a forward P/E of 10.84. We also note that LYG has a PEG ratio of 0.95. 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. CM currently has a PEG ratio of 1.34.

Another notable valuation metric for LYG is its P/B ratio of 1. 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, CM has a P/B of 1.42.

These are just a few of the metrics contributing to LYG's Value grade of B and CM's Value grade of C.

LYG 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 LYG is likely the superior value 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

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

Zacks Investment Research