As investors, we have often heard never-ending debates about “Growth” stocks and “Value” Stocks. While some prefer the former, some prefer to hold the latter in their portfolio. However, before putting a finger on anything, we need to understand the basic difference between the two.
“Growth" stocks are like racing cars—they belong to companies with high potential for future growth. These firms often reinvest their profits to expand, so they might not pay dividends. Investors buy them for the promise of big future gains.
“Value” stocks are like classic cars—undervalued gems in the market. These stocks are from established companies, trading below what they’re truly worth. They often pay dividends.
Choose “Growth” stocks when you’re willing to take risks for potential high rewards, and you believe in a company’s future growth. Opt for “Value” stocks when you prefer stability, and regular dividends, and you want to buy stocks at a good price.
Let us focus on Value Stocks today.
As mentioned above, “Value Stock” is like finding a good deal on something you want to buy. Imagine you’re shopping for a car. You find two similar cars, but one is on sale for a much lower price than the other. The cheaper car could be seen as a “value” because you’re getting more for your money.
In the stock market, value stocks work in a similar way. They are stocks of companies that seem to be priced lower than they should be. Investors look for value stocks by considering a few key criteria:
Low Price-to-Earnings (P/E) Ratio: This is like looking at the price tag on the car. A low P/E ratio means the stock’s price is lower compared to the company’s earnings. It suggests the stock might be undervalued.
Price-to-Book (P/B) Ratio: Think of this as comparing the car’s price to its book value (its actual worth on paper). A low P/B ratio can indicate that the stock is trading for less than the value of the company’s assets.
Dividend Yield: Imagine the car also pays you some money back every month. In stocks, some companies pay dividends, which are like those payments. A higher dividend yield suggests a potential value stock.
Steady Earnings: Just like you’d want a car that doesn’t break down all the time, value investors like companies with consistent earnings over time.
Strong Fundamentals: This means looking at the company’s financial health, like its debt levels, cash flow, and market position.
We for good quality “Value Stocks” keeping the above criterion in mind. Based on the above-explained parameters, we zeroed down on these 14 Value Stocks that could be a part of any good “Value Portfolio”. Note that no stock mentioned is a direct buy recommendation as they all have different technical setups, but we would recommend accumulating these stocks on each decline and every available opportunity.
To sum it up, a value stock is like a good deal in the stock market. Investors hunt for them by comparing the stock’s price to its earnings, book value, and dividend payments, while also checking the company’s financial health. It’s a bit like finding that great discounted car in the world of stocks.
Milan Vaishnav, CMT, MSTA
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