Bargain Stocks - A Value Hunter’s Dream

Bargain stocks are stocks of companies which the market has undervalued according to certain financial measurements of their intrinsic worth or business prospects. Value investors believe that, because the stock market does not perfectly price all stocks, these bargain stocks can be found in just about any market condition. Bargain stocks (often called value stocks) generally experience less volatility than growth stocks since they are trading at a discount.

Finding bargain stocks usually entails conducting fundamental research to evaluate a company’s operating environment, its resources and strategic plans. One of the primary goals is to determine its prospects for exceeding the earnings expectations reflected in its current stock price. This research is performed to identify companies likely to produce superior returns over a specified time frame, identified by analyzing the dynamics in each company within its industry and within the economy. Through fundamental research, current bargain stocks can be identified.

Value managers look to buy companies that are trading below their intrinsic value or at a bargain. Value managers believe that the stock price will eventually progress to reflect the true value of the company and will usually include in their research some of the industry-standard ratios including price-to-earnings, price-to-book, and price-to-sales.

Bargain stocks are often identified through the value investors’ approach of first determining the intrinsic value of the stock through fundamental analysis and valuation formulas and then determining the width of its margin of safety- that is, how far below its intrinsic value is the stock currently trading. The greater the margin of safety, the greater the potential bargain.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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