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Is Southern Copper (SCCO) a Good Pick for Value Investors?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Southern Copper Corporation (SCCO - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Southern Copper has a trailing twelve months PE ratio of 20.34, as you can see in the chart below:

This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20.49. Also, if we focus on the long-term PE trend, Southern Copper’s current PE level puts it much below its midpoint of 27.89 over the past five years.

This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20.49. Also, if we focus on the long-term PE trend, Southern Copper’s current PE level puts it much below its midpoint of 27.89 over the past five years.

The stock’s PE however compares unfavorably with the Basic Material Market’s trailing twelve months PE ratio, which stands at 16.18. This indicates that the stock is overvalued right now, compared to its peers.

Meanwhile Southern Copper has a forward PE ratio (price relative to this year’s earnings) of 18.2, which is much lower than the current level. So, so it is fair to say that a more value-oriented path is ahead of the stock in the near term.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Southern Copper’s PEG ratio stands at just 1.6, compared with the Mining Non-Ferrous Market’s average of 1.66. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

In aggregate, Southern Copper currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Southern Copper a solid choice for value investors.

What About the Stock Overall?

Though Southern Copper might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and a Momentum Score of B. This gives SCCO a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>).

Meanwhile, the company’s recent earnings estimates have been upbeat. While the current-quarter estimate has seen one upward and one downward movement, the current-year estimate has seen one upward and no downward movement over the past two months.

This has had a positive effect on the consensus estimate. While the current-quarter consensus has climbed 2.1% over the past two months, the current-year estimate has grown 2.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Despite such positive analyst sentiments, the stock has a Zacks Rank #3 (Hold) and it is the reason why we are looking for in line performance from the company in the near term.

Bottom Line

Southern Copper is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite a strong industry rank (among Top 42% of more than 250 industries), with a Zacks Rank #3, it is hard to get too excited about the stock.

Also, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:

So, value investors might want to wait for Zacks rank and past industry performance to turn around in this name first, but once that happens, this stock could be a compelling pick.

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