Investors looking for stocks in the Diversified Communication Services sector might want to consider either Telefonica (TEF) or Telus (TU). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. 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.
Telefonica and Telus are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that TEF likely has seen a stronger improvement to its earnings outlook than TU 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.
TEF currently has a forward P/E ratio of 14.05, while TU has a forward P/E of 21.87. We also note that TEF has a PEG ratio of 0.82. 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. TU currently has a PEG ratio of 5.02.
Another notable valuation metric for TEF is its P/B ratio of 1.18. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, TU has a P/B of 2.14.
Based on these metrics and many more, TEF holds a Value grade of A, while TU has a Value grade of C.
TEF sticks out from TU in both our Zacks Rank and Style Scores models, so value investors will likely feel that TEF is the better option right now.
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Telefonica SA (TEF) : Free Stock Analysis Report
TELUS Corporation (TU) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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