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Are Investors Undervaluing These Basic Materials Stocks Right Now?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company to watch right now is Mercer International (MERC). MERC is currently sporting a Zacks Rank of #1 (Strong Buy), as well as an A grade for Value. The stock holds a P/E ratio of 7.06, while its industry has an average P/E of 8.76. Over the past year, MERC's Forward P/E has been as high as 11.76 and as low as 4.76, with a median of 5.81.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. MERC has a P/S ratio of 0.47. This compares to its industry's average P/S of 0.51.

Finally, we should also recognize that MERC has a P/CF ratio of 2.90. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 7.90. MERC's P/CF has been as high as 9.63 and as low as 2.41, with a median of 4.99, all within the past year.

Another great Paper and Related Products stock you could consider is Stora Enso Oyj (SEOAY), which is a # 2 (Buy) stock with a Value Score of A.

Shares of Stora Enso Oyj currently holds a Forward P/E ratio of 11.08, and its PEG ratio is 0.57. In comparison, its industry sports average P/E and PEG ratios of 8.76 and 0.84.

SEOAY's price-to-earnings ratio has been as high as 17.37 and as low as 11.08, with a median of 13.90, while its PEG ratio has been as high as 2.14 and as low as 0.57, with a median of 1.09, all within the past year.

Stora Enso Oyj also has a P/B ratio of 1.07 compared to its industry's price-to-book ratio of 3.92. Over the past year, its P/B ratio has been as high as 1.60, as low as 1.07, with a median of 1.33.

Value investors will likely look at more than just these metrics, but the above data helps show that Mercer International and Stora Enso Oyj are likely undervalued currently. And when considering the strength of its earnings outlook, MERC and SEOAY sticks out as one of the market's strongest value stocks.

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