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K vs. LW: Which Stock Should Value Investors Buy Now?


Investors interested in stocks from the Food – Miscellaneous sector have probably already heard of Kellogg (K) and Lamb Weston (LW). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, Kellogg has a Zacks Rank of #2 (Buy), while Lamb Weston has a Zacks Rank of #5 (Strong Sell). Investors should feel comfortable knowing that K likely has seen a stronger improvement to its earnings outlook than LW has recently. However, value investors will care about much more than just this.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

K currently has a forward P/E ratio of 16.15, while LW has a forward P/E of 21.43. We also note that K has a PEG ratio of 4.22. 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. LW currently has a PEG ratio of 6.30.

Another notable valuation metric for K is its P/B ratio of 6.55. 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, LW has a P/B of 30.15.

These are just a few of the metrics contributing to K’s Value grade of B and LW’s Value grade of D.

K has seen stronger estimate revision activity and sports more attractive valuation metrics than LW, so it seems like value investors will conclude that K is the superior option right now.

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