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Finding Undervalued and Oversold Stocks

In both bullish and bearish markets, one can find stocks with good growth potential. The key is in selecting them according to pertinent measures of valuation. In other words, screen to find what screaming Jim Cramer would call "forgotten, forlorn, and undiscovered stocks." Like an attractive debutant, they will be stars someday, yet no one dances with them now.

Useful criteria are measures such as a stock's debt to equity, price to sales, price to book, and PEG ratios. All of those should be lower than their peers. Such stocks are in companies of intrinsic value, though the share prices are relatively low. In addition, the company insiders should own a substantial amount of company stock.

Finding More Extreme Stock Bargains

Stocks listed in the table below are trading near recent lows, though fundamental data indicate that a higher price should be expected. Often the low pricings are a result of overall market conditions and not due to company's financial situation. In some cases, stock prices have been driven way down due to panic selling on negative news. When an irrational market sell-off happens, extreme stock bargains become available. The key to finding them is looking at fundamental valuation data and screening for the most irrationally cheap stocks. Look at recent news that may have triggered a sell-off and consider its true financial impact.

Avoid Mortally Wounded Stocks

At the present time, there are many Chinese "reverse merger" stocks appearing in the screener. These companies, despite attractive fundamentals, are in trouble due to very poor corporate governance. Some have published false data in their required reports to the SEC, while others have failed and refused to file required reports. Others have shown similar contempt for the honesty and openness expected of publicly traded corporations. These stocks trade well below book value because they are at risk of being halted or de-listed. Some will be rehabilitated and generate huge profits for gutsy traders, but considerable due diligence is necessary to separate the survivors from the mortally wounded. Tread carefully in the world of Chinese "reverse merger" stocks.

A valuation formula has been applied to stock data in the table below, and indicates reasonable prices; stocks driven down by irrational selling will be readily apparent. Other stocks, which have undergone a correction from being overbought will actually be priced near reasonable levels after a sell-off.

Always carry out proper research before buying or selling a stock. This online valuation calculator is only a tool for finding potentially profitable trades, and should be augmented with other information and sound reasoning.