AT&T Beats Verizon With Cash: Analyst's Toolkit

BOSTON (TheStreet) -- With all the hype about Motorola's (MOT - commentary - Trade Now) new Droid and Apple's (AAPL - commentary - Trade Now) iPhone, it's hard to discern which wireless provider is the better bet: AT&T (T - commentary - Trade Now) or Verizon Communications (VZ - commentary - Trade Now).

There's no reason to let snarky ads or product reviews influence your investment decisions when there are measures that can help identify the stronger company in the competitive world of mobile technology. Here's a primer for sizing up the stocks:

Price-to-earnings ratio: AT&T: 12.5, Verizon: 12.3

The companies' P/E ratios are almost the same. While this metric doesn't give either company an edge, it shows that both stocks are undervalued based on their projected earnings. The average P/E for their peers is over 36, so AT&T and Verizon look cheap by comparison.

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PEG ratio: AT&T: 2.05, Verizon: 2.55

The picture of these companies dims as you look at their PEG ratios (price/earnings to growth). A PEG of 1 is suppose to indicate a fair price, but these stocks top 2. AT&T's PEG ratio is about 20% lower than Verizon's, making AT&T more appealing because its price is in line with its potential growth.

The companies' low P/E and high PEG ratios suggest that analysts are predicting slow growth. It could mean that the mobile technology market is reaching saturation, and that companies will need to target each other's customers rather than find new accounts.

Sustainable growth: AT&T: 2.3%, Verizon: 0.84%

The companies' sustainable growth levels reflect their limited prospects. AT&T clearly trumps Verizon in this category, yet both figures are low because of the companies' high payout ratios. While this could be a good sign for investors seeking dividend income, these companies might be the wrong picks for people looking for big gains.

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Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.