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This story originally appeared on Zacks
Here at Zacks, we focus on our proven ranking system that puts an emphasis on earnings estimates and valuation revisions to find winning stocks. But we also understand that investors develop their own strategies, so we constantly look at the latest trends in value, growth and momentum to find strong companies for our readers.
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If you look at the history of these trends, perhaps none is more popular than value investing. This strategy only aims to identify companies that are undervalued by the broader market. Value investors rely on traditional forms of analyzing key valuation metrics to find stocks that they believe are undervalued and leave room for profit.
Zacks developed the innovative Style Scores system to highlight stocks with certain characteristics. Value investors are interested in stocks with good grades in the “Value” category, for example. Combined with a high Zacks rank, the “A” ratings in the Value category are some of the strongest value stocks on the market today.
One stock that you should keep an eye on is this AutoNation ON. AN currently has a Zacks rank of # 1 (Strong Buy) and an A rating for Value.
Value investors also love the P / S ratio, which is calculated by simply dividing the price of a stock by the company’s sales. Some people prefer this metric because sales on the income statement are harder to manipulate. This means it could be a more accurate performance indicator. AutoNation has a P / S ratio of 0.38. This compares to the industry’s average P / S of 0.47. The P / S of AN was as high as 0.43 and as low as 0.25, with a median of 0.36 last year.
Investors will want to see that AutoNation has a P / E of 7.44. This data point takes into account a company’s cash flow from operations and is often used to find companies that are undervalued given their solid cash prospects. AutoNation’s current P / CF looks attractive compared to the industry’s average P / CF of 10.45. Last year, AN’s P / CF was 8.27 and 3.98 with a median of 5.42.
Another great auto stock to consider is this Lithia Motors Inc. LAD, a Zacks Rank # 1 (Strong Buy) share with a value score of A.
Lithia Motors’ stock currently trades 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. Last year, LAD’s P / E was as high as 19.87, as low as 9.02 with a median of 14.44; his PEG was 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 PER of 2.41, while its industry price-to-book ratio is 2.17. For LAD, this score was 4.83 to 2.22 with a median of 3.39 last year.
These numbers are just a handful of the metrics investors love to look at, but they show that AutoNation and Lithia Motors are likely undervalued right now. Given that fact, and the strength of their earnings outlook, AN and LAD feel like value stocks right now.
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The only question is: “Will you get into the right stocks early when their growth potential is greatest?”
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AutoNation, Inc. (AN): Free Stock Research Report
Lithia Motors, Inc. (LAD): Free Stock Research Report
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