Investors will swear by any number of different strategies, whether it's some form of technical analysis or more of a buy-and-hold approach. The truth is, there's no one single methodology that guarantees to outperform the market.

But if you're looking for a simple way to manage your portfolio, you may want to take a fundamental approach -- find the stocks that offer the most bang for your buck.

So how can you determine whether or not a stock is trading at a discount? There are a number of different metrics used to calculate value, i.e., price-to-book or price-to-earnings ratios (just to name a few). But we decided to take a somewhat different tack, instead comparing current stock price to average analyst target price.

Financial analysts usually issue a target price for a stock along with a "sell," "hold," or "buy" recommendation, reflecting what they deem to be its fair market value. The average target price is calculated by taking the mean of a group of analysts' individual target prices.

When a stock trades below this average analyst target price, we considered it to be trading at a discount to its fair market value.

Not that this is a fail-safe approach by any means -- you'll still need to do your homework on your investments. But you can use this list as a starting point for you to do your own research.

As a secondary screening method, we then looked at institutional trading data, and identified the undervalued stocks that have seen the most significant institutional buying during the current quarter.

Big money managers and Wall Street analysts seem to think these stocks are deeply undervalued -- what do you think? (Click here to access free, interactive tools to analyze these ideas.)

List sorted by the relative size of institutional buying.

1. Itron (Nasdaq: ITRI): Scientific & Technical Instruments Industry. During the current quarter, institutional investors have been net buyers of 5.6M shares, which represents about 13.91% of the company's float of 40.25M shares. Friday's closing price at $54.31 vs. average analyst target price at $68.57, which implies a potential upside of 26.26% from current levels.

2. Nanometrics Incorporated (Nasdaq: NANO): Scientific & Technical Instruments Industry. During the current quarter, institutional investors have been net buyers of 1.8M shares, which represents about 10.61% of the company's float of 16.97M shares. Friday's closing price at $15.61 vs. average analyst target price at $21, which implies a potential upside of 34.53% from current levels.

3. Meadowbrook Insurance Group (NYSE: MIG): Property & Casualty Insurance Industry. During the current quarter, institutional investors have been net buyers of 3.1M shares, which represents about 6.25% of the company's float of 49.63M shares. Friday's closing price at $9.81 vs. average analyst target price at $12.25, which implies a potential upside of 24.87% from current levels.

4. Hewlett-Packard (NYSE: HPQ): Diversified Computer Systems Industry. During the current quarter, institutional investors have been net buyers of 102.4M shares, which represents about 4.74% of the company's float of 2.16B shares. Friday's closing price at $35.98 vs. average analyst target price at $45.22, which implies a potential upside of 25.68% from current levels.

5. Microsoft (Nasdaq: MSFT): Application Software Industry. During the current quarter, institutional investors have been net buyers of 319.7M shares, which represents about 4.29% of the company's float of 7.46B shares. Friday's closing price at $24.49 vs. average analyst target price at $32.79, which implies a potential upside of 33.89% from current levels.

6. Great Lakes Dredge & Dock (Nasdaq: GLDD): Heavy Construction Industry. During the current quarter, institutional investors have been net buyers of 2.3M shares, which represents about 4.17% of the company's float of 55.18M shares. Friday's closing price at $6.41 vs. average analyst target price at $8.75, which implies a potential upside of 36.51% from current levels.

7. Sotheby's (NYSE: BID): Specialty Retail Industry. During the current quarter, institutional investors have been net buyers of 2.3M shares, which represents about 3.45% of the company's float of 66.63M shares. Friday's closing price at $41.69 vs. average analyst target price at $57.06, which implies a potential upside of 36.87% from current levels.

8. Community Health Systems (NYSE: CYH): Hospitals Industry. During the current quarter, institutional investors have been net buyers of 2.9M shares, which represents about 3.27% of the company's float of 88.65M shares. Friday's closing price at $28.23 vs. average analyst target price at $37.88, which implies a potential upside of 34.18% from current levels.

9. ON Semiconductor (Nasdaq: ONNN): Semiconductor Industry. During the current quarter, institutional investors have been net buyers of 14.1M shares, which represents about 3.19% of the company's float of 441.59M shares. Friday's closing price at $11.29 vs. average analyst target price at $14.3, which implies a potential upside of 26.66% from current levels.

10. DG FastChannel (Nasdaq: DGIT): Business Services Industry. During the current quarter, institutional investors have been net buyers of 772.0K shares, which represents about 3.06% of the company's float of 25.24M shares. Friday's closing price at $34.04 vs. average analyst target price at $43.67, which implies a potential upside of 28.29% from current levels.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.


Kapitall's Eben Esterhuizen does not own shares of any companies mentioned.

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