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NVS vs. NVO: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors with an interest in Large Cap Pharmaceuticals stocks have likely encountered both Novartis (NVS) and Novo Nordisk (NVO). 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Novartis has a Zacks Rank of #2 (Buy), while Novo Nordisk has a Zacks Rank of #3 (Hold) right now. This means that NVS's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.

NVS currently has a forward P/E ratio of 14.36, while NVO has a forward P/E of 21.63. We also note that NVS has a PEG ratio of 1.69. 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. NVO currently has a PEG ratio of 2.05.

Another notable valuation metric for NVS is its P/B ratio of 3.40. 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, NVO has a P/B of 16.51.

These metrics, and several others, help NVS earn a Value grade of B, while NVO has been given a Value grade of C.

NVS 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 NVS is likely the superior value option right now.


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Novartis AG (NVS) : Free Stock Analysis Report
 
Novo Nordisk A/S (NVO) : Free Stock Analysis Report
 
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