BAESY vs. RYCEY: Which Stock Should Value Investors Buy Now?

Investors looking for stocks in the Aerospace - Defense Equipment sector might want to consider either Bae Systems PLC (BAESY) or Rolls-Royce Holdings PLC (RYCEY). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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.

Right now, Bae Systems PLC is sporting a Zacks Rank of #2 (Buy), while Rolls-Royce Holdings PLC 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 BAESY is likely seeing its earnings outlook improve to a greater extent. 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.

BAESY currently has a forward P/E ratio of 23.07, while RYCEY has a forward P/E of 38.06. We also note that BAESY has a PEG ratio of 1.58. 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. RYCEY currently has a PEG ratio of 2.03.

Another notable valuation metric for BAESY is its P/B ratio of 5.42. 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, RYCEY has a P/B of 44.48.

Based on these metrics and many more, BAESY holds a Value grade of B, while RYCEY has a Value grade of D.

BAESY sticks out from RYCEY in both our Zacks Rank and Style Scores models, so value investors will likely feel that BAESY is the better option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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