Investors looking for stocks in the Banks - Foreign sector might want to consider either Bancolombia (CIB) or Banco Itau (ITUB). 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.

Bancolombia has a Zacks Rank of #2 (Buy), while Banco Itau 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 CIB 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.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

CIB currently has a forward P/E ratio of 6.55, while ITUB has a forward P/E of 9.53. We also note that CIB has a PEG ratio of 0.92. 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. ITUB currently has a PEG ratio of 1.17.

Another notable valuation metric for CIB is its P/B ratio of 1.19. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, ITUB has a P/B of 1.99.

These metrics, and several others, help CIB earn a Value grade of A, while ITUB has been given a Value grade of D.

CIB sticks out from ITUB in both our Zacks Rank and Style Scores models, so value investors will likely feel that CIB 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

BanColombia S.A. (CIB):Free Stock Analysis Report

Itau Unibanco Holding S.A. (ITUB):Free Stock Analysis Report

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

Zacks Investment Research

View Comments