Investors with an interest in Mining - Miscellaneous stocks have likely encountered both Billiton (BBL - Free Report) and BHP (BHP - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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.
Billiton and BHP are both sporting a Zacks Rank of # 1 (Strong Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one piece of the puzzle for value investors.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
BBL currently has a forward P/E ratio of 10.95, while BHP has a forward P/E of 13.44. We also note that BBL has a PEG ratio of 2.64. 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 3.24.
Another notable valuation metric for BBL is its P/B ratio of 0.90. 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, BHP has a P/B of 1.67.
These metrics, and several others, help BBL earn a Value grade of A, while BHP has been given a Value grade of D.
Both BBL and BHP are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that BBL is the superior value option right now.