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Investors interested in stocks from the Oil and Gas – Production Pipeline – MLB sector have probably already heard of Energy Transfer LP (ET) and Oneok Inc. (OKE). But which of these two stocks presents investors with the better value opportunity right now? Let’s take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Energy Transfer LP and Oneok Inc. are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that ET’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 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.
ET currently has a forward P/E ratio of 10.50, while OKE has a forward P/E of 16.55. We also note that ET has a PEG ratio of 0.41. 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. OKE currently has a PEG ratio of 4.42.
Another notable valuation metric for ET is its P/B ratio of 1.38. 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, OKE has a P/B of 2.90.
These are just a few of the metrics contributing to ET’s Value grade of A and OKE’s Value grade of C.
ET is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ET is likely the superior value option right now.
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