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How to Find Undervalued Stocks deepbluegroup

By the age of 10, Warren Buffett is said to have already read all of the books in the Omaha Public Library which contained the word finance in the title. Because he so eagerly read books about finance, he read some of them twice. Today, if you were to fly with him in a private jet, he would most certainly exchange pleasantries and then start reading.

Today's post shows you one of the ways I use in looking for undervalued stocks using a real example that does not use a screener.

Not that there is something wrong with screeners basically. In truth, I still utilize them as a tool for finding undervalued stocks. It just so happens that I prefer reading and evaluating investing information and data from the main sources. That is, I believe screeners have their limitations. First of all, screeners utilize metrics that depend on data from the balance sheet, such as price to tangible book-value which may not be completely correct due to off-balance-sheet liabilities, e.g., operating leases:

The key factor to consider is that you must do your homework if you really want to find an undervalued stock. No one will point you to undervalued stocks as if they were theater ushers finding a seat for you.

How do you stay away from incorrect intrinsic valuations? How do you go about looking for undervalued stocks then? Is there a systematic way of intrinsic valuation that does not utilize a screener?

It is often claimed that good companies having strong balance sheets and give out dividends and have competent management and possess a track record of profit growth are at times mispriced by the market. But this occurs for short periods at a time, which means that the best way to find undervalued companies is to observe companies on a daily basis, particularly those that have undergone price dips --very huge ones. Since there are more businesses that are reasonably valued than those that are undervalued, you need an effective method of eliminating those that are fairly valued from your research approach in order to focus your time and due diligence on prospective undervalued stocks.

I have evaluated thousands of US and UK equities and have arrived at a quick way of discarding fairly valued or overvalued stocks. But before I divulge my strategy, let us take a close look at an example from today's list of 52-week lows from The London Stock Exchange.

How to Ensure That Valuing a Company Is Irrelevant
It will be impossible for you to develop a portfolio of undervalued stocks if you read this post but forget one essential component to a value investor's chest of tools. If you do not possess a written and proven investing strategy with which you can analyze every stock, then it is useless to conduct a valuation at all.

A list of 52-week lows is available to furnish you with a suitable daily list of stocks you can start appraising. Many expert investors make use of this list to come up with insights for investments similarly.

If I will purchase a stock, then I need some information on what I am looking for from the perspective of a value-orientated approach. I cannot simply say I will purchase stocks that have a low PE ratio. Amara has a low PE ratio but it is not an undervalued stock as of the present. I clearly have to look for solid evidence that a stock shows a collection of value qualities each and every time and on every stock I buy for my portfolio.

By now, some of you may think that all this is hogwash and that finding undervalued stocks demands a person to have a college degree or some exclusive potion that only a chosen select few possess. Or maybe you believe that your stockbroker or financial journalist would be more in a position than you to discover undervalued stocks. Well, that way of thinking is what I would call hogwash.

Now that you know how to find undervalued stocks, you will have to consider writing down your own value-investing strategy that you can call your unique personal creation. Avoid imitating me or anyone else because you will end up repeating my biases and failures.

Here are 3 important value-investing approaches that Warren Buffett's mentor Benjamin Graham recommended that individual investors may opt to imitate and develop on

- How The Price-to-Book Ratio Can Help You Become A Successful Investor

- Here's A Quick Guide To One Of Ben Graham's Investing Strategies

- How To Invest Like Ben Graham And Walter Schloss

Thanks for reading and do not forget to apply these value investing strategies for a minimum of 12 months using an online virtual portfolio before you start spending a single cent on the stock market.

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