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TEX vs. CAT: Which Stock Is the Better Value Option?

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Investors with an interest in Manufacturing - Construction and Mining stocks have likely encountered both Terex (TEX - Free Report) and Caterpillar (CAT - Free Report) . 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Terex and Caterpillar are both sporting a Zacks Rank of # 1 (Strong Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. 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.

TEX currently has a forward P/E ratio of 10.44, while CAT has a forward P/E of 16.98. We also note that TEX has a PEG ratio of 0.57. 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. CAT currently has a PEG ratio of 1.41.

Another notable valuation metric for TEX is its P/B ratio of 2.81. 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, CAT has a P/B of 7.83.

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

Both TEX and CAT are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TEX is the superior value option right now.


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