A Guide to Finding Undervalued Stocks With HIGH Accuracy

  • Investing.com
  • Stock Market News
A Guide to Finding Undervalued Stocks With HIGH Accuracy
Credit: © Reuters.

In Wednesday’s trading session, the benchmark Nifty 50 index is witnessing its 5th consecutive uptick, gaining over 61 points and inching towards its resistance, by 2:42 PM IST. While the immediate trend appears positive, a decisive formation of higher highs and higher lows on the daily time frame is yet to be seen, suggesting that the market is still in a broad range.

For investors looking to capitalize on this subdued market by hunting for undervalued stocks, a systematic approach can be highly effective. Here's a straightforward method to start building a robust portfolio using the InvestingPro+ advanced screener.

Offer: Whether identifying undervalued gems or avoiding overpriced stocks, InvestingPro+ equips users with the tools they need to harness the full potential of their investments. Click here to avail your limited-time 69% discount today!

Step 1: Screen for Fair Value

Begin by using the InvestingPro+ screener to filter stocks based on the criterion "Fair value > 20%". This filter will generate a list of stocks trading below their average intrinsic value, providing a good starting point for identifying potential investment opportunities. However, it's essential to narrow down this list to ensure quality over quantity.

For eg, in the above data of Chambal Fertilisers (NS: CHMB ), one can see that the stock is undervalued and has the potential to deliver a gain of around 14.1%. This is the easiest yet most effective way to gauge how much potential a stock might have, before making an investment decision.

Step 2: Evaluate Financial Health

Next, evaluate the financial health of these companies. Look for stocks with a financial health score of 3 or above. This score, provided by InvestingPro+, is derived from analyzing over 100 parameters across five broad categories and is rated out of 5. A score of 3 indicates that the company has better-than-average fundamentals, making it a more secure investment.

Here, a score of 4 is more than sufficient to qualify the stock as a portfolio-grade one. Had it been lower than 3, we would not have considered it for any investment, irrespective of the valuation gap.

Step 3: Check for Red Flags with ProTips

After identifying stocks that meet the fair value and financial health criteria, use InvestingPro+ ProTips to check for any red flags. One key aspect to consider is the company's profitability over the last 12 months. Profitability is crucial, especially for smaller companies, as it distinguishes financially sound businesses from riskier ones. Additionally, ProTips can highlight if a company has more cash on hand than debt, which is always a positive sign for investors.

A thumb rule is - the more the valuation gap, the better the time to enter the stock. Investors with some knowledge of technical analysis can further refine their strategy by examining stock charts to better time their entry points. However, the primary focus should be on selecting high-quality, undervalued stocks using the aforementioned criteria.

InvestingPro+ is an invaluable tool for investors seeking to gain deep insights into their stock selections. Trusted by thousands of investors in India and around the globe, InvestingPro+ provides comprehensive data and analysis to help you make informed investment decisions. By following this structured approach, investors can position themselves to uncover undervalued gems and build a strong portfolio, ready to take advantage of potential market rebounds.

For a limited time, you can subscribe to InvestingPro+ at a discounted rate of INR 526 per month for two years. To elevate your investment journey, click here to receive this 69% discount today!

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100

Related Articles