RIO or BHP: Which Is the Better Value Stock Right Now?

Investors with an interest in Mining - Miscellaneous stocks have likely encountered both Rio Tinto (RIO) and BHP (BHP). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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.

Both Rio Tinto and BHP have a Zacks Rank of #2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. 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 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.

RIO currently has a forward P/E ratio of 11.43, while BHP has a forward P/E of 16.67. We also note that RIO has a PEG ratio of 0.92. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. BHP currently has a PEG ratio of 1.12.

Another notable valuation metric for RIO is its P/B ratio of 1.86. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, BHP has a P/B of 3.93.

These are just a few of the metrics contributing to RIO's Value grade of A and BHP's Value grade of C.

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

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This article originally published on Zacks Investment Research (zacks.com).

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