Investors with an interest in Oil and Gas - Exploration and Production - Canadian stocks have likely encountered both Encana and Canadian Natural Resources (CNQ - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Encana has a Zacks Rank of #2 (Buy), while Canadian Natural Resources has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ECA is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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 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.
ECA currently has a forward P/E ratio of 8.74, while CNQ has a forward P/E of 16.24. We also note that ECA has a PEG ratio of 0.87. 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. CNQ currently has a PEG ratio of 2.71.
Another notable valuation metric for ECA is its P/B ratio of 0.86. 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, CNQ has a P/B of 1.37.
These are just a few of the metrics contributing to ECA's Value grade of A and CNQ's Value grade of C.
ECA stands above CNQ thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ECA is the superior value option right now.