I opened up a scottrade account….with extra play money….whats the best way to find undervalued stock? ..
It is extremely difficult to tell when a stock is really undervalued. Currently many appear to be but in fact they may not be. With an oil company one can check the amount of proven reserves they have and based on the market capitalization divide that by the total barrels of proven reserves and come up with the dollars per barrel. By comparing companies one can determine which might be the most undervalued. For example recently APAs proven reserves were valued at $8.04 a barrel. XOM at $26.40 a barrel. That is one way. Another way is price/book value. By book value I mean tangible book value which excludes accounting fluff. Another method is to compare the current price of the stock as compared to earnings PE ratio to what has been a historical average. When the current PE ratio is say 30% below the 10 year average then maybe it is undervalued. The PE ratio of WMT is currently about 14.5. The 10 year historical average is about 20 or so. In fact I do not recall it being so low for a very long long time.