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Are Investors Undervaluing Dow (DOW) Right Now?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

Dow (DOW) is a stock many investors are watching right now. DOW is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock holds a P/E ratio of 8.79, while its industry has an average P/E of 11.38. Over the past year, DOW's Forward P/E has been as high as 12.32 and as low as 6.35, with a median of 8.96.

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DOW is also sporting a PEG ratio of 0.29. 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. DOW's PEG compares to its industry's average PEG of 0.71. DOW's PEG has been as high as 0.44 and as low as 0.21, with a median of 0.31, all within the past year.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. DOW has a P/S ratio of 0.85. This compares to its industry's average P/S of 0.86.

Finally, we should also recognize that DOW has a P/CF ratio of 5.19. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. DOW's current P/CF looks attractive when compared to its industry's average P/CF of 6.28. Over the past year, DOW's P/CF has been as high as 10.98 and as low as 4.54, with a median of 5.09.

If you're looking for another solid Chemical - Diversified value stock, take a look at Methanex (MEOH). MEOH is a # 1 (Strong Buy) stock with a Value score of A.

Furthermore, Methanex holds a P/B ratio of 1.66 and its industry's price-to-book ratio is 2.34. MEOH's P/B has been as high as 2.15, as low as 1.34, with a median of 1.75 over the past 12 months.

Value investors will likely look at more than just these metrics, but the above data helps show that Dow and Methanex are likely undervalued currently. And when considering the strength of its earnings outlook, DOW and MEOH sticks out as one of the market's strongest value stocks.


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