Investors interested in stocks from the Manufacturing – Farm Equipment sector have probably already heard of Agco (AGCO) and Deere $DE (DE). But which of these two companies is the best option for those looking for undervalued stocks? Let’s 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Agco has a Zacks Rank of #2 (Buy), while Deere 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 AGCO is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
AGCO currently has a forward P/E ratio of 19.80, while DE has a forward P/E of 32.04. We also note that AGCO has a PEG ratio of 0.81. 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. DE currently has a PEG ratio of 2.01.
Another notable valuation metric for AGCO is its P/B ratio of 2. 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, DE has a P/B of 5.91.
Based on these metrics and many more, AGCO holds a Value grade of A, while DE has a Value grade of D.
AGCO 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 AGCO is likely the superior value option right now.
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