While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.
Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.
Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.
One stock to keep an eye on is First American Financial (FAF). FAF is currently sporting a Zacks Rank #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 11.43 right now. For comparison, its industry sports an average P/E of 26.72. Over the past 52 weeks, FAF's Forward P/E has been as high as 15.32 and as low as 9.75, with a median of 11.61.
Another notable valuation metric for FAF is its P/B ratio of 1.31. 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. This stock's P/B looks solid versus its industry's average P/B of 1.47. Over the past 12 months, FAF's P/B has been as high as 1.43 and as low as 1.08, with a median of 1.29.
Value investors also use the P/S ratio. The P/S ratio is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. FAF has a P/S ratio of 0.92. This compares to its industry's average P/S of 1.3.
RenaissanceRe (RNR) may be another strong Insurance - Property and Casualty stock to add to your shortlist. RNR is a Zacks Rank of #2 (Buy) stock with a Value grade of A.
RenaissanceRe is trading at a forward earnings multiple of 7.47 at the moment, with a PEG ratio of 1.72. This compares to its industry's average P/E of 26.72 and average PEG ratio of 4.64.
RNR's price-to-earnings ratio has been as high as 9.31 and as low as 5.89, with a median of 7.87, while its PEG ratio has been as high as 3.67 and as low as 1.39, with a median of 1.84, all within the past year.
RenaissanceRe also has a P/B ratio of 1.14 compared to its industry's price-to-book ratio of 1.47. Over the past year, its P/B ratio has been as high as 1.49, as low as 1.09, with a median of 1.24.
Value investors will likely look at more than just these metrics, but the above data helps show that First American Financial and RenaissanceRe are likely undervalued currently. And when considering the strength of its earnings outlook, FAF and RNR sticks out as one of the market's strongest value stocks.
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First American Financial Corporation (FAF): Free Stock Analysis Report RenaissanceRe Holdings Ltd. (RNR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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