Undervalued Stocks

robertbanking

Hello you wonderful and kind people that make up this forum. I sincerely hope you are doing well today and hope your day goes well.

I kindly wanted to ask please once a stock has been analysed as undervalued, say it is massively undervalued by 40%, would this protect you for instance against volatility. Say on a recent earnings release sales were slightly down and growth was slowing, would this have a less impact on the share price volatility please, as it is already undervalued? For instance when Zoom share price grew rapidly in lockdown 2020 as everyone was having video calls, the share price grew rapidly and was massively overvalued. Then suddenly when growth started slowing the share price dropped significantly. I kindly wanted to ask please if buying undervalued stocks protects you from these massive share price drops,i understand there is still risk but wanted to protect myself from downside losses as much as possible. If anyone kindly had anyone opinion on this i would be forever grateful, your support means the world to me and you are all amazing people here.

Hope you have a wonderful rest of the weekend and hope you achieve massive success with your investing. More importantly, take care of yourself and all the very best to you.   

masonic

Even if a stock falls 90% in value and you buy it, it can still fall another 90% or even 100%. Someone who says a stock is undervalued or overvalued is just disagreeing with the current valuation determined by market participants. It is just an opinion.

jimjames

It obviously protects you to the extent that you can't lose as much as when the shares were 40% more expensive but there's nothing to say the price won't drop more. Never try to catch a falling knife is a phrase used. There are multiple examples of shares that seemed good value but then dropped more. One that caught even the professionals was Provident financial 

sevenhills

I recently bought 888 holdings after a recommendation in Investors Chronicle, recently two directors bought into it too.
I assume they thought it was under valued too. It has since increased in price, so I sold. But probably still good value.
I was rather confused whilst reading Investors Chronicle in the supermarket, one tipsters recommended a share and another one recommended selling it.

On-the-coast

The simple answer to your question is “No”

the extended answer is that the current value reflects the balance between competing uncertainties that the share is under or over valued. 

Or “under-valued” says who?
I think pretty much every share I’ve bought had a variety of opinions associated I.e some would say buy, some “sell”, and some say hold…which is the same as saying under/over/fairly valued. 

wmb194

You need to define what you mean by, "undervalued." In your example you've used a company that, as a speculative 'tech stock,' was always expensive on a price/earnings badis but became cheaper but still expensive on a p/e basis. Given this it wouldn't be a surprise if it fell a lot further if forecasted cash flows didn't come to pass. 

Your idea can work but it works better with companies that have reliable cashflows and aren't usually highly valued to begin with e.g., tobacco, utility companies. The problem is that even with these companies there might be reasons why their share prices have been beaten down e.g., worries around government legislation that will affect them (particularly pertinent to tobacco).

Albermarle

I was rather confused whilst reading Investors Chronicle in the supermarket, one tipsters recommended a share and another one recommended selling it

 Tips are just opinion, so nothing unusual about two people having different opinions about something. Plus the tips help to fill up space in the magazine. 

wmb194

sevenhills said:

I was rather confused whilst reading Investors Chronicle in the supermarket, one tipsters recommended a share and another one recommended selling it.

There's an old saying about it taking two opinions to make a market. Was one an IC tip and the other a columnist or fund manager interview? They do sometimes have differing opinions.

Nebulous2

sevenhills said:

I recently bought 888 holdings after a recommendation in Investors Chronicle, recently two directors bought into it too.
I assume they thought it was under valued too. It has since increased in price, so I sold. But probably still good value.
I was rather confused whilst reading Investors Chronicle in the supermarket, one tipsters recommended a share and another one recommended selling it.

We live in a world where it seems much easier to disagree than to agree. We are drowning in information, and all we need to do is find some way to make sense of it. 

Some of the investment websites do a round-up of analysts, or tipsters, to get an overview - for example this one for Arrowhead Pharmaceuticals which has been discussed here under biotech.  

mark5

I held RDSB and BP shares during covid which I felt were undervalued at the time they did recover to prices I felt were more realistic but were volatile and reacted to every bit of news for 2 years. 

I would say a share thats possibly undervalued would me more volatile than a share thats at its true value!

Voyager2002

For an example of an undervalued share that fell further, look at Evofem (EVFM). I watched it for a while, then when the price fell and I felt it was undervalued I invested. Rinse and repeat: I spent a total of USD8,000 buying shares in this company.

When I checked this morning, my stake was worth an incredible USD3.94!