If you’re wondering how to find the best undervalued stocks then you’ve come to the right place. That’s my whole gameplan. Buy them cheap and then hold them. I think it’s the safest way to operate in the stock market these days as you never know what’s around the corner. I hate to take risks with my money so I like to invest my money in options that are safe as houses. Well you know what I mean. I’d never invest in the housing market.

A great place to start is the price to earnings ration or P/E as you’ll see it listed. In it’s simplest form it’s the price of the stock divided by the earnings for the previous year. Easy right? If this number is low then it might just indicate an undervalued stock. This isn’t the deciding factor that you should definitely buy a particular stock. It’s just a small factor that you might want to throw into the mix. If it was that easy we’d all be doing it right? And that would drive up the price of the stock and then there wouldn’t be any undervalued stocks. Anyway, I’m getting sidetracked. A lot of sites will recommend looking at the dividend yield as well and to make sure companies always pay out a dividend or have done over a period of say five years. Warren Buffett looks for this factor too before buying stocks. The thing to watch out for with this is that some companies don’t pay out a dividend and would rather reinvest it back into the company. So these figures can be misleading.

Undervalued Stocks

Undervalued Stocks

You’ll see a lot of stocks for beginners sites recommending that you look at the trading volume of a stock. The theory here is that if the trading volume is low then the stock hasn’t quite caught the imagination of the public and therefore the price is low. When it does catch on, the price will come back up and you’ll be a few dollars up. For me, much of this is based on asumptions so it’s not something I’ve ever paid attention too. If the trading volume is pretty high it might mean that everyone knows about this stock and that’s driven the price up. The price might be so high that it no longer represents value for money. I think learning this idea is a little easier than trying to learn currency trading but that’s just me.

Another thing that you can check on the companies annual reports is the debt to equity ration. Any dept will have to be reported at the end of year reports so that current stock owners can see what debts the companies has and steps they’re taking to repay it. If the ratio is high, it could mean that trouble is around the corner as the company has debts mounting up. These debts outweight the equity so they may have trouble paying it back. If on the other hand this ratio is low, it means that the company is in good financial shape and may be worth investing in. It’s definitely something to consider if you’re looking for undervalued shares to buy.

Many sites now offer you the option to use stock screeners which lets you put in all kinds of filters and then analyse the data when it comes out the other end. It’s often a great place to start with stocks as it filters out all the rubbish. You should then take these companies and drill into them deeper if you like by finding out about the management team and what the plans are for the future. If you like what you see then perhaps it’s worth investing your money into the company?