Investors interested in stocks from the Diversified Communication Services sector have probably already heard of Telus (TU - Free Report) and BCE (BCE - 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Telus has a Zacks Rank of #2 (Buy), while BCE has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that TU likely has seen a stronger improvement to its earnings outlook than BCE has recently. But this is just one factor that value investors are interested in.
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.
TU currently has a forward P/E ratio of 16.90, while BCE has a forward P/E of 17.50. We also note that TU has a PEG ratio of 2.11. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. BCE currently has a PEG ratio of 5.
Another notable valuation metric for TU is its P/B ratio of 2.87. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, BCE has a P/B of 3.33.
Based on these metrics and many more, TU holds a Value grade of B, while BCE has a Value grade of C.
TU stands above BCE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TU is the superior value option right now.