Investors with an interest in Oil and Gas - Exploration and Production - United States stocks have likely encountered both Newfield Exploration and Cabot Oil (COG - Free Report) . 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.
Newfield Exploration has a Zacks Rank of #2 (Buy), while Cabot Oil has a Zacks Rank of #3 (Hold) right now. This means that NFX's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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 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.
NFX currently has a forward P/E ratio of 8.73, while COG has a forward P/E of 21.61. We also note that NFX has a PEG ratio of 0.70. 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. COG currently has a PEG ratio of 0.72.
Another notable valuation metric for NFX is its P/B ratio of 3.83. 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, COG has a P/B of 4.44.
These are just a few of the metrics contributing to NFX's Value grade of A and COG's Value grade of C.
NFX sticks out from COG in both our Zacks Rank and Style Scores models, so value investors will likely feel that NFX is the better option right now.