Investors looking for stocks in the Oil and Gas - Integrated - United States sector might want to consider either ConocoPhillips (COP) or Cactus, Inc. (WHD). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
ConocoPhillips has a Zacks Rank of #1 (Strong Buy), while Cactus, Inc. has a Zacks Rank of #3 (Hold) right now. This means that COP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
COP currently has a forward P/E ratio of 12.20, while WHD has a forward P/E of 19.72. We also note that COP has a PEG ratio of 1.36. 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. WHD currently has a PEG ratio of 2.14.
Another notable valuation metric for COP is its P/B ratio of 2.22. 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, WHD has a P/B of 3.19.
These metrics, and several others, help COP earn a Value grade of B, while WHD has been given a Value grade of C.
COP has seen stronger estimate revision activity and sports more attractive valuation metrics than WHD, so it seems like value investors will conclude that COP is the superior option right now.
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This article originally published on Zacks Investment Research (zacks.com).