Investors looking for stocks in the Mining – Gold sector might want to consider either AngloGold (AU) or Franco-Nevada (FNV). But which of these two companies is the best option for those looking for undervalued stocks? Let’s take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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, AngloGold has a Zacks Rank of #1 (Strong Buy), while Franco-Nevada has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that AU likely has seen a stronger improvement to its earnings outlook than FNV has recently. 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 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.
AU currently has a forward P/E ratio of 13.92, while FNV has a forward P/E of 64.41. We also note that AU has a PEG ratio of 0.54. 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. FNV currently has a PEG ratio of 16.10.
Another notable valuation metric for AU is its P/B ratio of 3.86. 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, FNV has a P/B of 5.56.
These metrics, and several others, help AU earn a Value grade of B, while FNV has been given a Value grade of F.
AU 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 AU is likely the superior value option right now.
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