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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
Finding turnaround stocks can be tricky. Here are some common characteristics, which could come in quite handy in the current environment.
Negative enterprise value stocks are hard to find. But having outperformed the market by more than 5-to-1, they’re worth hunting for.
Growth stocks and value stocks are commonly separated into two very different categories. By using price multiples, you can evaluate either type of stock.
The reports of shopping malls’ deaths are greatly exaggerated, and this shopping mall REIT is making a strong case for contrarian investors.
Benjamin Graham’s Net Current Asset Value approach to uncovering bargain stocks finds the minimum value a company would fetch if liquidated.
Apple’s (AAPL) consumer loyalty and brand quality offer appeal to every investor, but are the shares attractive to a value investor?
Contrary to what Warren Buffett says, it’s always a good idea to diversify your portfolio. Here are three reasons investors should do it.
To answer the question, what is value investing, try to find opportunities and spot deep discounts. These criteria can help.
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.
This is the secret Warren Buffett stock-picking formula that has helped investors build long-term wealth and beat the market over and over.
Warren Buffett made one successful investment after another. These seven guidelines will help you to invest like Warren Buffett.
Benjamin Graham is considered the godfather of value investing. Understanding who is Benjamin Graham and his system will make you a success.
These Benjamin Graham quotes are good reminders that successful investing requires a keen eye and a steady nerve.
Treating year-to-date performance as if the calendar is the kickoff to a football game is a mistake. For value investors, there’s a better way.
Growth stocks have outpaced value stocks over the last decade. But performance is cyclical - and value investing should soon win out.