Investors interested in Food - Miscellaneous stocks are likely familiar with Conagra Brands (CAG) and MGP (MGPI). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Conagra Brands is sporting a Zacks Rank of #2 (Buy), while MGP has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that CAG likely has seen a stronger improvement to its earnings outlook than MGPI has recently. But this is just one factor that value investors are interested in.
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.
CAG currently has a forward P/E ratio of 12.32, while MGPI has a forward P/E of 18.85. We also note that CAG has a PEG ratio of 1.94. 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. MGPI currently has a PEG ratio of 2.09.
Another notable valuation metric for CAG is its P/B ratio of 1.87. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, MGPI has a P/B of 2.78.
These metrics, and several others, help CAG earn a Value grade of A, while MGPI has been given a Value grade of C.
CAG has seen stronger estimate revision activity and sports more attractive valuation metrics than MGPI, so it seems like value investors will conclude that CAG is the superior option right now.
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