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Is American Capital Agency Corp. (AGNC) a Great Stock for Value Investors?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put American Capital Agency Corp. (AGNC - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, American Capital Agency has a trailing twelve months PE ratio of 8.02, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.97. If we focus on the stock’s long-term PE trend, the current level puts American Capital Agency’s current PE ratio above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified REIT and Equity Trustindustry’s trailing twelve months PE ratio, which stands at 9.13. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that American Capital Agency has a forward PE ratio (price relative to this year’s earnings) of just 8.20, so it is fair to say that the stock price might appreciate in near future
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, American Capital Agency’s P/CF ratio of 3.44 is lower than the Zacks classified REIT and Equity Trustindustry average of 9.39, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, American Capital Agency currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes American Capital Agency a solid choice for value investors.
What About the Stock Overall?
Though American Capital Agency might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘F’ and a Momentum score of ‘A’. This gives AGNC a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty encouraging. The current quarter has seen seven three estimates go higher in the past sixty days compared to none lower, while the full year estimate has seen five upward and no downward movements in the same time period.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has risen by 9% in the past two months and the full year estimate has grown by 7.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Bottom Line
American Capital Agency is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 40% out of more than 250 industries), it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks REIT and Equity Trustindustry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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Is American Capital Agency Corp. (AGNC) a Great Stock for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put American Capital Agency Corp. (AGNC - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, American Capital Agency has a trailing twelve months PE ratio of 8.02, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.97. If we focus on the stock’s long-term PE trend, the current level puts American Capital Agency’s current PE ratio above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified REIT and Equity Trustindustry’s trailing twelve months PE ratio, which stands at 9.13. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that American Capital Agency has a forward PE ratio (price relative to this year’s earnings) of just 8.20, so it is fair to say that the stock price might appreciate in near future
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, American Capital Agency’s P/CF ratio of 3.44 is lower than the Zacks classified REIT and Equity Trustindustry average of 9.39, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, American Capital Agency currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes American Capital Agency a solid choice for value investors.
What About the Stock Overall?
Though American Capital Agency might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘F’ and a Momentum score of ‘A’. This gives AGNC a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty encouraging. The current quarter has seen seven three estimates go higher in the past sixty days compared to none lower, while the full year estimate has seen five upward and no downward movements in the same time period.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has risen by 9% in the past two months and the full year estimate has grown by 7.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
American Capital Agency Corp. Price and Consensus
American Capital Agency Corp. Price and Consensus | American Capital Agency Corp. Quote
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Bottom Line
American Capital Agency is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 40% out of more than 250 industries), it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks REIT and Equity Trustindustry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>