Investors interested in REIT and Equity Trust - Other stocks are likely familiar with Diversified Healthcare (DHC) and Ventas (VTR). 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Diversified Healthcare is sporting a Zacks Rank of #2 (Buy), while Ventas has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that DHC likely has seen a stronger improvement to its earnings outlook than VTR has recently. However, value investors will care about much more than just this.
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.
DHC currently has a forward P/E ratio of 6.97, while VTR has a forward P/E of 16.78. We also note that DHC has a PEG ratio of 1.74. 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. VTR currently has a PEG ratio of 7.12.
Another notable valuation metric for DHC is its P/B ratio of 0.63. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, VTR has a P/B of 2.21.
Based on these metrics and many more, DHC holds a Value grade of A, while VTR has a Value grade of D.
DHC sticks out from VTR in both our Zacks Rank and Style Scores models, so value investors will likely feel that DHC is the better option right now.
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Zacks Investment Research