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TGT vs. COST: Which Stock Should Value Investors Buy Now?

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Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Target (TGT - Free Report) or Costco (COST - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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.

Currently, both Target and Costco are holding a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one factor that value investors are interested in.

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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

TGT currently has a forward P/E ratio of 13.31, while COST has a forward P/E of 30.82. We also note that TGT has a PEG ratio of 2.12. 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. COST currently has a PEG ratio of 3.44.

Another notable valuation metric for TGT is its P/B ratio of 3.56. 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, COST has a P/B of 7.56.

Based on these metrics and many more, TGT holds a Value grade of A, while COST has a Value grade of C.

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


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