Investors with an interest in Oil and Gas - Integrated - United States stocks have likely encountered both Marathon Oil (MRO) and Occidental Petroleum (OXY). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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.
Marathon Oil has a Zacks Rank of #2 (Buy), while Occidental Petroleum has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MRO has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
MRO currently has a forward P/E ratio of 19.36, while OXY has a forward P/E of 23.33. We also note that MRO has a PEG ratio of 2.49. 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. OXY currently has a PEG ratio of 4.67.
Another notable valuation metric for MRO is its P/B ratio of 0.89. 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, OXY has a P/B of 1.18.
Based on these metrics and many more, MRO holds a Value grade of A, while OXY has a Value grade of C.
MRO sticks out from OXY in both our Zacks Rank and Style Scores models, so value investors will likely feel that MRO is the better option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
To read this article on Zacks.com click here.