Investors looking for stocks in the Large Cap Pharmaceuticals sector might want to consider either Bristol-Myers Squibb (BMY) or Merck (MRK). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Currently, Bristol-Myers Squibb has a Zacks Rank of #2 (Buy), while Merck has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that BMY likely has seen a stronger improvement to its earnings outlook than MRK has recently. However, value investors will care about much more than just this.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
BMY currently has a forward P/E ratio of 10.44, while MRK has a forward P/E of 14.90. We also note that BMY has a PEG ratio of 1.22. 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. MRK currently has a PEG ratio of 2.19.
Another notable valuation metric for BMY is its P/B ratio of 2.90. 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, MRK has a P/B of 7.66.
These are just a few of the metrics contributing to BMY's Value grade of A and MRK's Value grade of C.
BMY 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 BMY is likely the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
BristolMyers Squibb Company (BMY) : Free Stock Analysis Report
Merck Co., Inc. (MRK) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research