Value stocks refer to shares of companies that are considered undervalued in the marketplace relative to their intrinsic value or financial performance. These stocks typically trade at lower price-to-earnings (P/E), price-to-book (P/B), or other valuation multiples compared to the broader market or their peers.
Characteristics of Value Stocks:
1. Low Valuation Ratios:
• Price-to-Earnings (P/E): Lower compared to the market or industry average.
• Price-to-Book (P/B): Reflects the stock price relative to the company’s book value.
• Dividend Yield: May be higher, as these companies often generate steady cash flows.
2. Stable or Established Businesses:
• Often belong to well-established industries or sectors.
• May have slower growth prospects compared to growth stocks.
3. Market Perception:
• May be perceived as having challenges (e.g., declining industries, lower innovation).
• Negative news or temporary setbacks might cause their undervaluation.
4. Strong Fundamentals:
• Solid earnings and cash flow.
• Often demonstrate resilience during market downturns.