This story originally appeared on Zacks
At Zacks, we focus on our proven ranking system, which emphasizes earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, which is why we constantly review the latest trends in value, growth, and momentum to find strong businesses for our readers.
Looking at the history of these trends, perhaps none is more popular than value investing. This strategy simply seeks to identify companies that are undervalued by the broader market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks they believe are undervalued, leaving room for earnings.
Zacks has developed the innovative Style Scores system to highlight stocks with specific characteristics. For example, value investors will be interested in stocks with good ratings in the “Value” category. When paired with a high Zacks ranking, “A” ratings in the Value category are among the strongest value stocks on the market today.
A stock to watch is AutoNation AN. AN currently sports a Zacks # 1 (strong buy) rating, as well as an A rating for value.
Value investors also like the P / S ratio, which is calculated by simply dividing the price of a stock by the sales of the company. Some people prefer this measure because sales are more difficult to manipulate on an income statement. This means that it could be a truer performance indicator. AutoNation has a P / S ratio of 0.38. This compares to its industry’s average P / S of 0.47. AN’s P / S has been as high as 0.43 and as low as 0.25, with a median of 0.36 in the past year.
Investors will want to recognize that AutoNation has a P / CF ratio of 7.44. This data point takes into account a company’s operating cash flow and is frequently used to find undervalued companies when considering their strong cash flow outlook. AutoNation’s current P / CF looks attractive compared to its industry average P / CF of 10.45. Over the past year, AN’s P / CF has reached 8.27 and as low as 3.98, with a median of 5.42.
Another great auto stock you might want to consider is Lithia Motors Inc. DAL, which is a Zacks Rank # 1 (strong buy) stock with a value score of A.
Lithia Motors shares are currently trading at a forward earnings multiple of 9.72 and a PEG ratio of 0.44 compared to its industry’s P / E and PEG ratios of 7.59 and 0.45, respectively. Over the past year, LAD’s P / E has reached 19.87, as low as 9.02, with a median of 14.44; his PEG has been as high as 0.89, as low as 0.41, with a median of 0.66 over the same period.
Additionally, Lithia Motors has a P / N ratio of 2.41 while its industry’s price to book ratio stands at 2.17. For LAD, this assessment measure has been as high as 4.83, as low as 2.22, with a median of 3.39 in the past year.
These numbers are just a handful of metrics investors tend to look at, but they help show that AutoNation and Lithia Motors are likely undervalued right now. Given this, along with their strong earnings outlook, AN and LAD currently feel like high value stocks.
Boom in infrastructure stocks will sweep America
A massive push to rebuild crumbling American infrastructure will soon be underway. It is bipartisan, urgent and inevitable. Billions will be spent. Fortunes will be made.
The only question is, “Are you going to jump into good stocks early when they have the greatest potential for growth?” “
Zacks published a special report to help you do just that, and today it’s free. Discover 7 special companies looking to make the most of the construction and repair of roads, bridges and buildings, as well as transporting goods and transforming energy on an almost unimaginable scale.
Download FREE: How to Profit from Trillions in Infrastructure Spending >>
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
AutoNation, Inc. (AN): Free Stock Analysis Report
Lithia Motors, Inc. (LAD): Free Stock Analysis Report
To read this article on Zacks.com, click here.
Zacks investment research