TEF vs. SCMWY: Which Stock Should Value Investors Buy Now?

Investors looking for stocks in the Diversified Communication Services sector might want to consider either Telefonica (TEF) or Swisscom AG (SCMWY). But which of these two stocks presents investors with the better value opportunity right now? 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.

Telefonica has a Zacks Rank of #2 (Buy), while Swisscom AG 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 TEF has an improving earnings outlook. But this is only part of the picture for value investors.

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.

TEF currently has a forward P/E ratio of 14.64, while SCMWY has a forward P/E of 17.38. We also note that TEF has a PEG ratio of 0.92. 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. SCMWY currently has a PEG ratio of 7.33.

Another notable valuation metric for TEF is its P/B ratio of 0.78. 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, SCMWY has a P/B of 2.43.

Based on these metrics and many more, TEF holds a Value grade of A, while SCMWY has a Value grade of C.

TEF 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 TEF is likely the superior value option right now.

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