Investors looking for stocks in the Medical - Biomedical and Genetics sector might want to consider either Gilead Sciences (GILD) or Illumina (ILMN). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Gilead Sciences has a Zacks Rank of #2 (Buy), while Illumina has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that GILD likely has seen a stronger improvement to its earnings outlook than ILMN has recently. But this is just one piece of the puzzle for value investors.
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.
GILD currently has a forward P/E ratio of 11.65, while ILMN has a forward P/E of 58.70. We also note that GILD has a PEG ratio of 3.37. 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. ILMN currently has a PEG ratio of 5.34.
Another notable valuation metric for GILD is its P/B ratio of 4.23. 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, ILMN has a P/B of 11.42.
These metrics, and several others, help GILD earn a Value grade of B, while ILMN has been given a Value grade of D.
GILD has seen stronger estimate revision activity and sports more attractive valuation metrics than ILMN, so it seems like value investors will conclude that GILD is the superior option right now.
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
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
Illumina, Inc. (ILMN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research