| Undervalued stocks are the type of stocks that | | | | next six months. |
| most investors want to buy. This is because | | | | The stock market and market conditions determine |
| undervalued stocks give the greatest chance for | | | | whether or not a stock is undervalued not its price |
| making money in the stock market. Not to mention | | | | to earnings ratio, or any other ratio for that matter. |
| that they typically have the greatest profit potential | | | | Simply put this means that if you bought a particular |
| out of all the thousands of stocks that are listed on | | | | stock today, between now and six months from |
| the different exchanges. | | | | now the stock would be undervalued if at any point |
| Undervalued stocks are usually identified by | | | | in time the price of the shares increased by 20%. |
| comparing the price of the share price to the | | | | Using the 20% rule helps to understand undervalued |
| earnings of the underlying company, or sometimes | | | | stocks. |
| the stock prices are compared to the projected | | | | After all a stock is not undervalued if it only goes up |
| earnings for the underlying company. | | | | by a few points, or goes up by one or two percent, |
| This has been the benchmark for finding and | | | | this is just the normal trading range that most stocks |
| identifying undervalued stocks. | | | | experience. But an undervalued stock would have to |
| However this is an incorrect definition of an | | | | appreciate by at least 20% from the time that you |
| undervalued stock. An undervalued stock is, any | | | | bought it to six months out into the future to fit the |
| stock that is trading below 20% of its value in the | | | | criterion. |