Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of Regal Beloit (RRX) and Eaton (ETN). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Regal Beloit and Eaton are sporting a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is only part of the picture 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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
RRX currently has a forward P/E ratio of 12.57, while ETN has a forward P/E of 21.63. We also note that RRX has a PEG ratio of 1.26. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ETN currently has a PEG ratio of 1.97.
Another notable valuation metric for RRX is its P/B ratio of 1.38. 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, ETN has a P/B of 4.16.
These are just a few of the metrics contributing to RRX's Value grade of B and ETN's Value grade of C.
Both RRX and ETN are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that RRX is the superior value option right now.
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