Investors interested in stocks from the Wireless Equipment sector have probably already heard of Ericsson (ERIC) and Motorola (MSI). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Ericsson has a Zacks Rank of #2 (Buy), while Motorola has a Zacks Rank of #3 (Hold). This means that ERIC's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
ERIC currently has a forward P/E ratio of 13.15, while MSI has a forward P/E of 24.76. We also note that ERIC has a PEG ratio of 1.56. 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. MSI currently has a PEG ratio of 2.73.
Another notable valuation metric for ERIC is its P/B ratio of 2.95. 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, MSI has a P/B of 26.6.
Based on these metrics and many more, ERIC holds a Value grade of A, while MSI has a Value grade of D.
ERIC has seen stronger estimate revision activity and sports more attractive valuation metrics than MSI, so it seems like value investors will conclude that ERIC is the superior option right now.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
