Ask any expert who believes in stocks and you are likely to hear one advice pretty often. This advice has to do with finding the right kind of undervalued stocks and making your fortune. The trick is, of course, to find the right kind of stocks and know how much and when to invest in them.
There are plenty of ways in which you can learn how to find undervalued stocks. You can choose to do a few basic calculations and figure out which stock has a market value which is significantly below its actual or true value. Once you pick up the stocks, you can hope to make a fortune when the market value catches up with the true value of the stocks.
What are the advantages of finding undervalued stocks?
While there are many advantages of buying undervalued stocks, the main ones are:
- Minimize downside risk
- Reap fabulous returns once the stock’s price catches up with its actual value
- Being able to use the returns on further investments in the stock market.
Answering the question of how to find undervalued stocks can be approached in a few important ways.
Shortlist a few companies
One of the easiest ways in which you can identify undervalued stocks is by going through newspapers and other sources of information and shortlisting a handful of companies which you may like to examine further.
You may not decide to buy all the stocks of all the companies but such a method of shortlisting will narrow the scope of analysis for you.
Once you have identified a handful of companies that you may like to analyze further, you can look at the established ratios such as price to earnings ratio and even look into the marketing and business strategy that a company has and analyze it further. This will give you a pretty good idea about the future performance of stocks.
Picking up books
There are plenty of books and articles that have been written by traders and business managers and even business captains that deal with the art of picking up undervalued stocks. It is an extremely good idea to pick up such books or access the articles on the Internet to get yourself enough information on how to find out about a company’s future prospects.
You are not always right
One really important thing that you should keep in mind is that you may not always be right about the attractiveness of a stock. You could use a virtual portfolio before actually putting in your money into undervalued stocks.
Ascertaining the correct price
Once you have identified undervalued stocks or companies that you would like to invest in, you will need to find out what the company is worth. This involves the calculation of the intrinsic value of stocks. You can do this by using the discounted cash flow model or the return on equity valuation method.
Learn Stock Trading
You can learn more about stock trading and techniques to find undervalue stocks if you will follow the stock trading expert Sharon Swing’s instagram page pro_swing_trades.