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.
2. Nanometrics Incorporated
3. Meadowbrook Insurance Group
6. Great Lakes Dredge & Dock
8. Community Health Systems
9. ON Semiconductor
10. DG FastChannel
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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