The best undervalued stocks are those that are priced below their current intrinsic value. These types of securities provide good long and short term investment opportunities for beginners and professionals alike. For example, these shares can rise significantly in value when investors spot their growth potential. Finding such stocks beforehand can be highly profitable, so in this guide, we have detailed how you can find the best undervalued stocks in 2021.
Where Can I Trade the Best Undervalued Stocks?
Investing in the stock market is made easy these days through the use of online brokers. We have shortlisted some of the best brokers for you.
What Are the Best Undervalued Stocks?
As the GameStop saga in Q1 2021 proved, there are always stocks that could rise significantly in price when a group of investors determines that they are undervalued, although in this case, mere speculation was also a factor.
From an investment rather than speculation perspective, undervalued stocks may be those whose total assets exceed their current market capitalisation, so shareholders could simply sell all the company’s assets and make a profit. Or, an undervalued stock might be one whose earnings and operating magin justify a higher share price, as measured by one of the fundamental ratios such as the price to earning (P/E) ratio.
What Are the Trading Hours for the Best Undervalued Stock?
Exchanges all over the world open and close at specific times. US stock markets include the New York Stock Exchange (NYSE) and the Nasdaq. These markets are available to trade from 9:30 am to 4 pm eastern time, but some trading occurs pre-market and post-market. London and other international markets trade during different hours.
Trading the Best Undervalued Stocks in 3 Steps
Open a Trading Account
To invest in undervalued stocks, the first step is to open a trading account on your chosen brokerage platform. This is a relatively simple process, taking only a few minutes to select a username, select a password and provide a contact email or telephone number. After this, you will need to provide some identification such as a valid passport or driving license.
Choose Undervalued Stocks
You can fund your trading account using a debit or credit card (and sometimes PayPal), then navigate the broker’s list of available stocks to buy. Some brokers let you filter the list on various criteria, to more easily identify the stocks you want. You can also usually click one of the listed stocks to see additional information or look up the company on a financial website to find its fundamental ratios.
Place Your Trade
Before placing a trade in a live trading account, some brokers let you “paper trade” in a demo account. Once you know what you’re doing, go ahead and click the “buy” button for your selected stock in your live account, but be sure not to invest too much money too soon in a single stock (however undervalued it looks).
Best Undervalued Stocks to Trade?
Finding undervalued stocks to trade can be difficult; it can take a lot of research to assess companies based on their financial strength (fundamental ratios) and strategic ambitions. We have done some of the hard work for you by identifying the best undervalued stocks in 2021:
- Advanced Micro Devices (AMD)
- Heico Corporation (HEI)
- Ambarella (AMBA)
- Novavax (NVAX)
- Criteo (CRTO)
- Aarons (AAN)
- Qualcomm (QCOM)
- Acuity Brands (AYI)
- Grand Canyon Education (LOPE)
- IBM (IBM)
1. Advanced Micro Devices (AMD)
The market cap for this stock stands at $112.05 billion at the time of writing. The outlook for AMD looks bright because its graphics processing units (GPUs) and other processors consistently beat those of its top rivals and it's gaining market share. Specifically, AMD has a deal to supply Samsung with graphics chips that are claimed to beat Apple’s offerings. AMD’s share price performed well in the five years to 2021 but then became somewhat volatile.
2. Heico Corporation (HEI)
This aerospace company develops jet engines and aircraft components. It offers FAA-approved parts at a lower price than the original equipment manufacturers (OEMs). After the market crashed during the coronavirus pandemic, it quickly turned around to report non-flight growth of 4%. Heico’s market cap at the time of writing is $16.51 billion.
3. Ambarella (AMBA)
This semiconductor design company has a market cap of $4.12 billion at the time of writing. Some investors might have considered it too late to buy the stock due to its uptrend since the company’s Q3 earnings, but a fall back between March and May 2021 will have allowed some investors to “buy the dip”.
4. Novavax (NVAX)
The Novavax share price benefited a lot from being a leading vaccine developer at the time of the coronavirus pandemic, and it also attracted the appreciation of legendary businessman Bill Gates. Analysts forecast a big improvement in this biotech company’s earnings.
5. Criteo (CRTO)
Criteo is one of the world’s best advertising retargeting companies, but beware that its analysis of consumer behaviour could be affected by web browser manufacturers phasing out the use of customer-tracking cookies. Although Criteo shares suffered in March 2020, they bounced back sixfold between April 2020 and April 2021.
Expert Tip on Investing in the Best Undervalued Stocks“ While trading undervalued stocks, it is important to keep your risk management in check at all times. Many traders and investors lose money due to a poor ability to control their risks, and not knowing when to cut losses. Do not risk more than a manageable amount of your total investment capital on any single trade or investment. Live to fight another day, but be cautious about selling out too soon and leaving profits on the table for someone else. ”- Shams Ul Zoha
Why Trade the Best Undervalued Stocks?
The best undervalued stocks can often provide good gains, especially if you invest early before the price of a stock soars to its intrinsic value and beyond. Investing in stocks whose share prices are below their intrinsic value can be relatively risk-free, but it’s not riskless, and it can take some time for a stock’s true value to be reflected in its share price. As one successful investor once said, “The market can remain irrational longer than you can stay solvent.”
Frequently Asked Questions
Shares (or stocks, or equities) represent part-ownership of the companies you invest in, and — for dividend-paying companies — a claim on a share of their profits. Forex (or foreign exchange) trades are bets that a particular currency such as the British pound will lose or gain value compared with another currency such as the US dollar.
It depends on what you mean by profitable. Some undervalued companies make profits and distribute them to shareholders. Some stocks, such as GameStop in early 2021, can be “profitable” for investors who buy in before the share price appreciates, even if this share price appreciation is as much to do with speculation as it is to do with reflecting true value.
The most profitable stocks should be the ones that are most undervalued in terms of their net assets or their future earnings prospects. However, it can take some time for a company’s true value to be reflected by its appreciating share price.
In the long run, most undervalued stocks should be safe to trade, but you should take an actuarial approach. In other words, a good call on a single undervalued stock (which subsequently increases tenfold) might make up for nine bad calls on ones that go bust. Diversification is thus one of the safest investment strategies.
Undervalued stocks can be good investments for beginners as long as you diversify your holdings rather than investing all your money in a single stock. Since these stocks should be held for a long time until their true value is realised, there is little work for a beginner investor to do once the stocks have been bought.
Unlike forex currency pairs and other derivative investments, stocks are traded during their respective markets’ trading hours. For example, you can’t trade UK stocks after 4.30 pm, but you can place orders outside of market hours to buy stocks automatically when the market next opens.