Investors with an interest in Oil and Gas - Exploration and Production - United States stocks have likely encountered both Berry Petroleum (BRY) and Concho Resources (CXO). 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.
Currently, Berry Petroleum has a Zacks Rank of #1 (Strong Buy), while Concho Resources has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that BRY likely has seen a stronger improvement to its earnings outlook than CXO has recently. 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.
BRY currently has a forward P/E ratio of 4.89, while CXO has a forward P/E of 21.10. We also note that BRY has a PEG ratio of 0.33. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. CXO currently has a PEG ratio of 1.59.
Another notable valuation metric for BRY is its P/B ratio of 0.58. 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, CXO has a P/B of 0.88.
These are just a few of the metrics contributing to BRY's Value grade of A and CXO's Value grade of C.
BRY has seen stronger estimate revision activity and sports more attractive valuation metrics than CXO, so it seems like value investors will conclude that BRY is the superior option right now.