Investors interested in stocks from the Steel - Producers sector have probably already heard of Posco (PKX) and United States Steel (X). 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Posco is sporting a Zacks Rank of #2 (Buy), while United States Steel has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that PKX is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
PKX currently has a forward P/E ratio of 11.10, while X has a forward P/E of 26.45. We also note that PKX has a PEG ratio of 0.30. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. X currently has a PEG ratio of 1.31.
Another notable valuation metric for PKX is its P/B ratio of 0.30. 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, X has a P/B of 0.86.
Based on these metrics and many more, PKX holds a Value grade of A, while X has a Value grade of C.
PKX 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 PKX is likely the superior value option right now.
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POSCO (PKX): Free Stock Analysis Report United States Steel Corporation (X): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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