Investors interested in stocks from the Diversified Communication Services sector have probably already heard of Telefonica Brasil (VIV - 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.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Telefonica Brasil is sporting a Zacks Rank of #2 (Buy), while BCE has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that VIV is likely seeing its earnings outlook improve to a greater extent. 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.
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.
VIV currently has a forward P/E ratio of 14.52, while BCE has a forward P/E of 18.10. We also note that VIV has a PEG ratio of 1.46. 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. BCE currently has a PEG ratio of 5.17.
Another notable valuation metric for VIV is its P/B ratio of 1.22. 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 3.54.
These are just a few of the metrics contributing to VIV's Value grade of A and BCE's Value grade of C.
VIV stands above BCE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that VIV is the superior value option right now.