ERIC or MSI: Which Is the Better Value Stock Right Now?

Investors looking for stocks in the Wireless Equipment sector might want to consider either Ericsson (ERIC) or Motorola (MSI). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Ericsson and Motorola are both sporting a Zacks Rank of #2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one factor that value investors are interested in.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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 16.61, while MSI has a forward P/E of 25.98. We also note that ERIC has a PEG ratio of 1.97. 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. MSI currently has a PEG ratio of 2.76.

Another notable valuation metric for ERIC is its P/B ratio of 3.37. 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, MSI has a P/B of 29.78.

These are just a few of the metrics contributing to ERIC's Value grade of A and MSI's Value grade of D.

Both ERIC and MSI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ERIC is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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