Investors with an interest in Oil and Gas - Production and Pipelines stocks have likely encountered both Ultrapar Participacoes S.A. (UGP) and Enbridge (ENB). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Ultrapar Participacoes S.A. is sporting a Zacks Rank of #2 (Buy), while Enbridge has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that UGP is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
UGP currently has a forward P/E ratio of 9.33, while ENB has a forward P/E of 22.51. We also note that UGP has a PEG ratio of 0.44. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. ENB currently has a PEG ratio of 5.63.
Another notable valuation metric for UGP is its P/B ratio of 2.19. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ENB has a P/B of 2.34.
These metrics, and several others, help UGP earn a Value grade of A, while ENB has been given a Value grade of C.
UGP is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that UGP is likely the superior value option right now.
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Ultrapar Participacoes S.A. (UGP): Free Stock Analysis Report
Enbridge Inc (ENB): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).