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Investors interested in Building Products - Wood stocks are likely familiar with Universal Forest Products (UFPI) and Louisiana-Pacific (LPX). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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.
Universal Forest Products and Louisiana-Pacific are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that UFPI's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
UFPI currently has a forward P/E ratio of 13.22, while LPX has a forward P/E of 16.76. We also note that UFPI has a PEG ratio of 2.64. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. LPX currently has a PEG ratio of 3.35.
Another notable valuation metric for UFPI is its P/B ratio of 1.99. 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, LPX has a P/B of 2.47.
These are just a few of the metrics contributing to UFPI's Value grade of B and LPX's Value grade of C.
UFPI sticks out from LPX in both our Zacks Rank and Style Scores models, so value investors will likely feel that UFPI is the better option right now.
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