What does it mean when a stock is "undervalued"?

When a stock is undervalued, it means professional analysts believe its current market price is lower than what the company is actually worth. This can happen for various reasons: the market might be overlooking strong fundamentals, the company might be in a temporarily unpopular industry, or investors might not yet recognize the potential of new products or services. Value investors look for these opportunities to buy quality companies at discount prices.

How do analysts determine if a stock is a "potential bargain"?

Analysts typically determine if a stock is a bargain by comparing its current price to their estimate of its true value. They examine financial statements, growth prospects, competitive advantages, and future earnings potential. They then set price targets based on this analysis. When there's a significant gap between the current stock price and these targets (especially with "Buy" ratings), it signals a potential bargain opportunity.

What is a "Buy" rating?

A "Buy" rating is a recommendation from financial analysts indicating they believe the stock will outperform the market or its sector over time. This recommendation suggests that, based on their research and analysis, the stock has strong potential for price appreciation. Different firms may use variations like "Strong Buy," "Outperform," or "Overweight," but they all generally indicate positive sentiment about a stock's future performance.

What's the difference between intrinsic value and market price?

Intrinsic value is what a company is actually worth based on fundamentals like assets, cash flow, growth potential, and competitive position. Market price is simply what investors are currently willing to pay for a stock, which can be influenced by emotions, trends, and short-term market conditions. When intrinsic value exceeds market price, value investors see opportunity. The market price eventually tends to converge with intrinsic value over time.

Why might it take time for undervalued stocks to reach their potential?

Undervalued stocks can take time to reach their potential for several reasons: the market may be slow to recognize improvements in the business; the company might need time to execute its growth strategy; or broader market trends might temporarily overshadow individual stock fundamentals. Catalysts that can accelerate price appreciation include earnings reports that exceed expectations, new product launches, industry shifts, or increased analyst coverage.

15 handpicked stocks

Potential Bargains

These companies are trading below what experts believe they're truly worth. Our analysts have carefully selected stocks with significant upside potential, representing hidden opportunities for growth as they move toward their projected valuations.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17