Finding under valued equities

cashbackproblems · 26 May 2017 at 1:24PM

hi

I have experience of funds and etf's but would like to diversify by buying individual shares UK/EU. I cant decide which stocks to choose and wondering what measures people use to see if a stock is undervalued apart from broker recommendations. PE ratios for example.

There are certain sectors like retail, supermarkets and home builders I do not like.

Currently looking at Lloyds, Standard Charter or AstraZeneca. I have no health care exposure but Astra seen quite expensive?

I am holding long term 10yrs + but would obviously like something which has growth potential not too concerned about divi but its a factor.

thanks

le_loup · 26 May 2017 at 1:31PM

If you don't know what to look for, why not let others do it for you?

Shashy · 26 May 2017 at 1:40PM

le_loup wrote: »

If you don't know what to look for, why not let others do it for you?

Or better yet, buy a fund and get a slice of every company in the index.

Linton · 26 May 2017 at 1:43PM

Some advice:
- Broker Recommendations arent to be relied on. If there was anything to them other people would have bought in long before you had a chance and the price would have risen accordingly.
- Dont ignore dividends. If it wasnt for re-invested dividends the FTSE100 would be about 5% above its height before the 2008 crash. With reinvested dividends it's up by about 65%.
- If you want to invest on the basis of "fundamentals" to identify undervalued shares I suggest you get trained up on company accounting so that you understand what all the terms mean and how to interpret a balance sheet. One figure isnt going to tell you the full story. And you had better be good - there are large numbers of people paid high salaries to identify such shares before you do. As le Loup suggests, why not use their skills?

Linton · 26 May 2017 at 1:49PM

Shashy wrote: »

Or better yet, buy a fund and get a slice of every company in the index.

If you mean buy an index fund, undervalued shares arent likely to be aligned with market capitalisation. Probably the reverse since large companies are analysed far more deeply by far more people than small ones.

Of course there is always the question of whether identifiable undervalued shares exist, but that's another discussion. If they do then it must be better to go for funds that look for them.

MPN · 26 May 2017 at 1:57PM

Linton wrote: »

Of course there is always the question of whether identifiable undervalued shares exist, but that's another discussion. If they do then it must be better to go for funds that look for them.

I know the OP originally asked about shares but how would you find undervalued funds or better value geographical sectors in the current market?

Linton · 26 May 2017 at 2:18PM

MPN wrote: »

I know the OP originally asked about shares but how would you find undervalued funds or better value geographical sectors in the current market?

I dont think the "undervalue" concept works very well for funds....

The value of a share is what people are prepared to pay for it. The price they are prepared to pay is based on beliefs about the company which may or may not be well-founded. So one can see that it is possible that there are factors that can be discovered which lead to an alternative view on the appropriate price.

OIEC/UT funds are just collections of companies priced according to the price of the individual shares. It is difficult to see how overall there can be a market price and over/under valuing operating in the same way as for shares. ITs are rather different here in that they are priced by the market.

The best answer for funds I believe is to invest in everything in a defined and well balanced allocation and rebalance occasionally so that the profits from high performing funds are used to buy extra units of more poorly performing ones. Here one is taking advantage of the fact that unlike shares it can be reasonably assumed that a poor performing fund will never fall continuously eventually going bust.

cashbackproblems · 26 May 2017 at 2:44PM

Thanks I was looking at Lindsell Train UK equity fund, or a Special Situations or UK Micro Cap fund.

Shares just appealed due to no charges but I guess its more risky.

Wookey · 26 May 2017 at 3:04PM

The likes of astrazeneca are "expensive" because they are a global company with a huge turnover and profit margin who pay consistent dividends year after year, fund managers buy into that reliability in a big way. If you do decide to go the shares route do your research and expect some losses along the way, the upside though can be huge.

Thrugelmir · 26 May 2017 at 3:18PM

cashbackproblems wrote: »

There are certain sectors like retail, supermarkets and home builders I do not like.

Currently looking at Lloyds, Standard Charter or AstraZeneca. I have no health care exposure but Astra seen quite expensive?

To find under valued companies you'll have to spread your net far wider and go trawling. There's nothing you'll find out about the major companies that isn't already known to someone. The sector is so well researched with analysts having direct meetings with Company management. The smaller the company's market capitalisation the less the coverage. Large funds cannot buy sufficient stock to make holding the Company a worthwhile investment.

EdGasketTheSecond · 26 May 2017 at 3:18PM

'Undervalued' is subjective and hence the only way to find undervalued shares is to decide what you consider makes a share undervalued (e.g. high yield, low price to assets, earnings growth rate etc.) and then look for shares of that type using a stock screener such as provided by ADVFN where you can set up your own filters. What looks undervalued to you might look over-priced to someone else using different criteria.

Finding under valued equities

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