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Investors interested in Electronics - Semiconductors stocks are likely familiar with Qualcomm (QCOM) and Applied Materials (AMAT). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Qualcomm is sporting a Zacks Rank of #2 (Buy), while Applied Materials 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 QCOM is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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.
QCOM currently has a forward P/E ratio of 10.58, while AMAT has a forward P/E of 13.78. We also note that QCOM has a PEG ratio of 1.15. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. AMAT currently has a PEG ratio of 1.36.
Another notable valuation metric for QCOM is its P/B ratio of 5.93. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, AMAT has a P/B of 6.53.
These are just a few of the metrics contributing to QCOM's Value grade of B and AMAT's Value grade of C.
QCOM 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 QCOM is likely the superior value option right now.
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