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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, Cabot offers both Cabot Value Investor and Cabot Turnaround Letter. Both advisories are intended for investors who place an added emphasis on company fundamentals and undervalued opportunities.

Value Stocks Post Archives
Warren Buffett has been a vocal backer of one U.S. energy stock, and despite the sector’s underperformance this year, he’s been buying more.
The Fed finally cut rates, but the real motivation behind the move is likely to benefit precious metals and this overlooked silver stock.
The fix for falling retail sales is lower prices, but with a new CEO at the helm, is Starbucks (SBUX) pricing itself (and its stock) out of the market?
With housing demand still strong and the home improvement market growing, it’s time to break down Lowe’s vs. Home Depot.
These two potential turnaround stocks look like prime beneficiaries of an increasingly defensive market ahead of the U.S. presidential election.
Beer stocks have been dragged down by changing consumer habits, high inflation and lower discretionary spending, but are they a buy at these low prices?
Contrary to what Warren Buffett says, it’s always a good idea to diversify your portfolio. Here are three reasons investors should do it.
These Benjamin Graham quotes are good reminders that successful investing requires a keen eye and a steady nerve.
There are plenty of stocks under $5, but few of them offer much value. And the distinction between cheap and low-priced is an important one.
To answer the question, what is value investing, try to find opportunities and spot deep discounts. These criteria can help.
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.
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.
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.
Modern warfare is rapidly evolving beyond the scope of legacy defense companies. This small-cap defense stock is poised to benefit.