Investors interested in stocks from the Medical - Drugs sector have probably already heard of Merck KGaA (MKKGY) and Zoetis (ZTS). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Merck KGaA and Zoetis are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that MKKGY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle 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 grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
MKKGY currently has a forward P/E ratio of 13.27, while ZTS has a forward P/E of 25.75. We also note that MKKGY has a PEG ratio of 1.57. 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. ZTS currently has a PEG ratio of 2.74.
Another notable valuation metric for MKKGY is its P/B ratio of 0.55. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ZTS has a P/B of 14.79.
These are just a few of the metrics contributing to MKKGY's Value grade of A and ZTS's Value grade of C.
MKKGY 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 MKKGY is likely the superior value option right now.
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Merck KGaA (MKKGY): Free Stock Analysis Report Zoetis Inc. (ZTS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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