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Value Stocks

Finding value is all about buying something at a discount to what it’s actually worth. The same is true of value stocks.

Sometimes factors can cause a stock to get beaten down to the point of being undervalued. Value investing is about finding stocks that are worth more than their current share price.

Investment legends like Sir John Templeton, Benjamin Graham and Warren Buffett realized decades before behavioral finance became a respected academic discipline that systematic psychological errors tend to create market inefficiencies. Templeton, Graham and Buffett reasoned that herding behavior (including momentum traders and short-term speculators that chase price trends) and overreaction bias (the tendency of people to overreact to bad news) are strong forces in the market that can push stocks far below their fair value.

Based on these observations, many of the world’s greatest investors look for stocks that are beaten down by the market due to bad news or negative rumors. Benjamin Graham, the father of value investing, constantly searched for companies that once fetched sky-high valuations but that crashed when the companies were unable to deliver on investors’ expectations.

Warren Buffett famously said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Value investing is about recognizing opportunities, spotting deep discounts and finding the next big turnaround stock. One way some investors measure a company’s value is its price-to-earnings ratio, or P/E. But P/E is a very simplistic measure of a stock’s value. Experts dig deeper, examining a company’s sales, cash flow, dividend, book value, debt levels, historical valuation patterns and more to determine if a stock is undervalued.

To help you find the next turnaround story, chief analyst Bruce Kaser writes the Cabot Undervalued Stocks Advisor and Cabot Turnaround Letter. Both advisories have a proven track record of handily beating the market with some of the most unloved, left-for-dead stocks on the market … right before their comeback stories begin.

To subscribe to either of Bruce’s value investing advisories, click here.

Value Stocks Post Archives
Benjamin Graham is considered the godfather of value investing. Understanding who is Benjamin Graham and his system will make you a success.
Warren Buffett made one successful investment after another. These seven guidelines will help you to invest like Warren Buffett.
Growth has trounced value over the last five years, but is value investing dead? Here are six facts that should make you think twice.
The PEG ratio is frequently used as a convenient rule of thumb, but its sole use can produce wildly wrong valuations. Here’s why.
You might be a value investor even if you don’t realize it. In fact, most people are value investors. Here’s why, along with the proof.
This is the secret Warren Buffett stock-picking formula that has helped investors build long-term wealth and beat the market over and over.
Benjamin Graham, the father of value investing, used these seven value stock criteria for selecting winning value stocks. Do you?
With the market in the midst of a correction it’s important to know how to identify undervalued stocks and not just “cheap” stocks.
Growth stocks and value stocks are commonly separated into two very different categories. By using price multiples, you can evaluate either type of stock.
Should the much-hyped Magnificent Seven rally peter out, investors will need to look elsewhere for solid returns. Following activist shareholders is a promising starting point.
Finding turnaround stocks can be tricky. Here are some common characteristics, which could come in quite handy in the current environment.
Charlie Munger, a legendary investor and former vice chair of Berkshire Hathaway, recently passed away at 99. Here are a few lessons he left us with, and his final investments.
Contrary to what Warren Buffett says, it’s always a good idea to diversify your portfolio. Here are three reasons investors should do it.
Benjamin Graham’s Net Current Asset Value approach to uncovering bargain stocks finds the minimum value a company would fetch if liquidated.
One of Benjamin Graham’s favorite parables is that of Mr. Market, who Graham often referred to in his classes at Columbia and in his book.