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MCK vs. ALGN: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors interested in Medical - Dental Supplies stocks are likely familiar with McKesson (MCK) and Align Technology (ALGN). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Currently, McKesson has a Zacks Rank of #2 (Buy), while Align Technology has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that MCK is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

MCK currently has a forward P/E ratio of 10.08, while ALGN has a forward P/E of 50.90. We also note that MCK has a PEG ratio of 1.43. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. ALGN currently has a PEG ratio of 2.36.

Another notable valuation metric for MCK is its P/B ratio of 2.78. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ALGN has a P/B of 16.29.

These metrics, and several others, help MCK earn a Value grade of A, while ALGN has been given a Value grade of D.

MCK is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that MCK is likely the superior value option right now.


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