Mutual Fund

What are ‘Value Stocks’


Definition :

The shares trading below their intrinsic value are considered value stocks and can be considered good investments. Investment Guru Benjamin Graham and Warren Buffett pioneered this concept. Value stocks may not be confused with penny stocks which trade at below par prices.

Explanation :

A value investor seeks under valued stocks ie stocks trading at a price less than they are worth. Value stocks could be from slow growing industries or from companies that are facing some problems leading to fall in their stock price. A value stock may be identified on the parameters like high dividend yield, low price to book ratio and even a low price-to-earnings ratio. All of these indicators are based on the fact that the market may not always efficiently match stock price with company performance. This market inefficiency may give investors an opportunity for substantial gains. There are investment services and guides that monitor the indicators of value stocks, but investors must cautiously interpret, analyses and take decisions based on performance, and the underlying fundamentals of the company.

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