Value Investing: What It Is and What to Buy

You can stick with value investing and still profit handsomely from fast growers. See why Cirrus Logic, Micron Technology, and Universal Display could be value investing dreams.

Apr 23, 2014 at 6:30PM

If you're trying out various investment approaches to see which fits you best, be sure to give serious thought to value investing. It's favored by many of the most successful investors, including Warren Buffett.

Value investing involves seeking out stocks that are selling for less than they're worth. By doing so, you're building in a margin of safety that can reduce the stock's downside risk.

Of course, figuring out what a company is worth is much easier said than done. The simplest of measures that investors use to get a handle on a stock's valuation is its price-to-earnings ratio, or P/E. The lower the P/E, the more attractive the stock -- in general. It's important to remember that P/Es vary by industry, so a car stock might be a bit pricey with a P/E of 16, but a faster-growing software company could be attractively priced with a P/E of 16. Keep in mind, too, that if a stock falls for good reason, its P/E will drop. Not every low P/E signals a bargain, and some companies with seemingly steep P/Es can be great values. The more you learn about a company, and the more measures you evaluate, the more effective an investor you're likely to be.

Note, too, that value investing is often contrasted with "growth investing," which chases fast-growing stocks and big gains. That can work out well, but there's often little margin of safety. And besides, it's not as if value investing avoids growth. Ideally, a company can grow at a good clip and also seem undervalued.

Value investing portfolio candidates
So which stocks deserve consideration from a value investing point of view? There are many, but below are a few that The Motley Fool's CAPS stock screener brought up when I sought stocks with market caps higher than $500 million, P/E ratios below 20, and three-year average revenue growth rates of 6% or more. You should, of course, do more digging before buying any of them.

Cirrus Logic (NASDAQ:CRUS), which makes circuits, has been a major supplier to Apple, which is both a good thing and a bad thing. Apple's successes have driven growth at Cirrus Logic, but the dependence has also left it vulnerable, leading to rather high short interest. Some worry about Apple offering lower-priced goods, which could put pressure on Cirrus' profit margins. Cirrus has been lining up other customers, though, and also operating in other realms, such as LED light power controllers. During the past three years, Cirrus Logic's revenue has averaged annual growth of 31%. Earnings have averaged a 3% drop, but during the past year, they jumped by more than 50%. The stock's recent P/E ratio has been around 10, well below its five-year average of 17, making some see it as an appealing value-investing pick despite its risks. Cirrus Logic reports its latest quarterly results on Friday.

Micron Technology (NASDAQ:MU) is another candidate for the value investing devotee. Its second quarter featured revenue roughly doubling and costs falling. With demand growing for solid state drives (SSDs), bulls like the company's investments in NAND memory technology, and see demand for 3D NAND technology driving growth at Micron and elsewhere. With a forward P/E near 10, my colleague Anders Bylund has dubbed Micron "a high-octane growth stock, but priced like a sleepy value play." Micron Technology hasn't paid a dividend since the 1990s, but with its current strength and growing profit margins, some are looking for a dividend reinstatement. Even without a dividend, though, the company is rewarding shareholders via aggressive stock buybacks.

Universal Display (NASDAQ:OLED) is another stock that value investing aficionados should consider. Its OLED technology is found in millions of smartphones, tablets, and TVS. Evolving technology (think curved OLED displays and transparent OLED displays) is likely to keep demand high. Its fourth quarter featured revenue up 76% and earnings nearly tripling over year-ago levels. The company's stock has been volatile, but its P/E ratio near 19 (well below its five-year average of 119) makes it an appealing value-investing opportunity.

You can learn more about value investing in some classic books, in other Fool articles, and at some of the many value investing blogs that exist.

Three stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multibagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Selena Maranjian, whom you can follow on Twitter, owns shares of Apple. The Motley Fool recommends Apple and Universal Display. The Motley Fool owns shares of Apple, Cirrus Logic, and Universal Display. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers