How to Find UNDERVALUED Stocks | Step-by-Step Method

Investing in undervalued company's is one of the most consistently profitable strategies in the stock market. However, finding undervalued stocks that have a high probability of providing you with large returns is not as simple as buying stocks with low multiples or a beaten up stock price. In this video, I cover the 5 steps that I have used to find undervalued stocks with high return potential.

The steps are as follows:

1. Screen for potentially undervalued stocks
In the first step you want to generate a large list of potentially undervalued stocks (100+ stocks) by using a stock screener. The criteria you should be using is as follows: market capitalization below $2B, Price-to-Earnings below 15, Price-to-Book below 1.5, and Shares Float below 1B. This will generate results of over 100+ stocks that you will be using to narrow down your choices to 1-5 stocks by the fifth and final step.

2. Search and Select
In this step you want to organize the initial list in ascending / descending order by market cap, price-to-earnings, or price-to-book, in order to make the list easier to navigate. Additionally, you can restrict the list to specific industries that you want to look for stocks in, which will further narrow the list down and make choosing stocks easier. By the end of this step you should have narrowed your original list down to 20-30 stocks that you believe are good candidates.

3. Filter out stocks by financial results
During this phase, you want to look at your list of 20-30 stocks and go over the financial results for each company. You want to remove any unprofitable company's, any company with high levels of debt as they carry high bankruptcy risk, and any company with deteriorating operational results. By the end of this phase your list should be narrowed down to 5-10 stocks.

4. Valuation
During this step you want to run a valuation for each of the 5-10 stocks that you have remaining, and compare their valuation to their stock price. If the stock is trading above its intrinsic value you can remove that stock from your list, and keep only the stocks that are trading well below their intrinsic value (20%+ below intrinsic value)

5. Catalyst
In the final step you want to do a deep dive into each company's business and try to find a catalyst that will bring the company back to its intrinsic value. This will require some digging and you should be looking for the following catalysts: new partnerships/ agreements, new management/ restructuring, is the company an acquisition target / merger target, any industry-wide catalysts. From this you should be choosing the stocks with the strongest, and most likely to be realized catalysts to make an investment in.

I am NOT a financial advisor, all my videos are for entertainment purposes only.

[senorjojo]

Amazing, i searched for "how to find undervalued stocks" and this video was close to the top of the results...with 900 views and 40ish likes. No one seems to care about serious investing. Rather buy the next hype over and over. So many people are going to get a realitycheck in the near future. Probably will drag good companies down too tho.

The video itself is excelent. Ill be giving this a try soon. Looking to find a few more long hold undervalued stocks to diversify my portfolio.

[chrisstaplehurst]

This video is really undervalued! Great job!

[khollandtalks]

Great video Eron! Cleared up a lot of things for me...thank you!

[fightinggravity]

Found an undervalued youtube channel. Does that count?

[claytonstoltz]

The hand scratch sign duct taped on the wall in the background is why I watched this!!!

[theseclowns]

Great video man, thank you so much for sharing your knowledge. People that heed your advice will be wise no doubt

[TheAndrewLopezFinancePodcast]

I agree with the P/E ratio. It can be a good starting point but should not be an end all be all

[neocruise]

I'm not a big fan of deep value investing.. but i really appreciate ur effort.. in the world of day traders, this type of video is rare.. keep up the good work man...

[TJ-qbif]

Great stuff bro I appreciate the knowledge!

[kevinpyne]

Very impressed with your presentation. Thanks.

[aryanmaheshwari]

Can you help me with 2 of my choices
Quad Graphics, Gannett

[NerdJoshua]

I use this screener to find net-nets; I hope to find something good.

[harrison]

When you say high debt load, are you referring to the debt ratio or the debt to equity ratio?

[aryanmaheshwari]

Also doesn't debt reduction unlock equity value?

[bouzie]

Great video. You know exactly what you're doing

[hypz]

A lot of great advice here. PS: EROS to the

[HikeyyGaming]

Hmm looks like this guy knows what hes talking about.