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UGP vs. PBA: Which Stock Should Value Investors Buy Now?

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Zacks Equity Research
·2 min read
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Investors with an interest in Oil and Gas - Production and Pipelines stocks have likely encountered both Ultrapar Participacoes S.A. (UGP) and Pembina Pipeline (PBA). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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.

Ultrapar Participacoes S.A. has a Zacks Rank of #2 (Buy), while Pembina Pipeline has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that UGP is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

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.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

UGP currently has a forward P/E ratio of 15.53, while PBA has a forward P/E of 21.45. We also note that UGP has a PEG ratio of 1.56. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. PBA currently has a PEG ratio of 4.29.

Another notable valuation metric for UGP is its P/B ratio of 2.18. 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, PBA has a P/B of 2.19.

These are just a few of the metrics contributing to UGP's Value grade of B and PBA's Value grade of D.

UGP 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 UGP is likely the superior value option right now.


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