What is a Value Stock?

What is a Value Stock?

Value Stock is a stock whose price has been deemed a value buy because of underlying fundamentals, book value, and projected earnings.

Prices for stocks can temporarily be pushed around by sentiment, index tracking fund purchases, news and political effects, et cetera, and often the prices on very good and well positioned companies become undervalued as part of larger movements that overlook their inherent value.

These companies are often going to become value stocks that will be picked up by savvy investors and institutions.

Factors that will make their values apparent are their book value (low price-to-book ratio), projected earnings (low price-to-earnings ratio), reduced exposure to sector risks or better positioning than peers given current conditions, other results of deep fundamental analysis, and other more technical valuation computations.

The underpricing of the stock due to some of the factors mentioned above is considered market inefficiency by value investors, but there is inherent pressure on those who are considering this buy to refrain from trusting their analysis, because on a more macro level the market is considered to be basically efficient, with the value pretty well priced-in to the equities in question.

Value investors and value fund managers (or their robot-counterparts) seek out these picks from the noise of the marketplace for long-term plays. The value investing strategy has been purported to give the best returns over the long haul than any other fundamental selection strategy (such as Growth investing), with Warren Buffett being a famous example of someone who considers himself a value investor.

What is the Difference Between a Growth and Value Stock?
What are the Basics of Stocks?