Investors looking for stocks in the REIT and Equity Trust - Other sector might want to consider either Diversified Healthcare (DHC) or Corporate Office Properties (OFC). 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 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, Diversified Healthcare is sporting a Zacks Rank of #1 (Strong Buy), while Corporate Office Properties has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that DHC likely has seen a stronger improvement to its earnings outlook than OFC has recently. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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.
DHC currently has a forward P/E ratio of 3.32, while OFC has a forward P/E of 9.59. We also note that DHC has a PEG ratio of 0.33. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. OFC currently has a PEG ratio of 0.87.
Another notable valuation metric for DHC is its P/B ratio of 0.12. 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, OFC has a P/B of 1.46.
Based on these metrics and many more, DHC holds a Value grade of B, while OFC has a Value grade of C.
DHC has seen stronger estimate revision activity and sports more attractive valuation metrics than OFC, so it seems like value investors will conclude that DHC is the superior option right now.
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