Undervalued Stocks Vs. Cheap Stocks

One good tips for investors when looking for a stock to buy is try to find an undervalued stock rather than a cheap stock.

It is hard sometimes to differentiate an undervalued stock and a cheap stock. One thing we should remember is that an undervalued stock is a stock that its price in the market is less than its intrinsic value. On the other side, a cheap stock is a stock that its price is relatively less than the other stocks in the market.

Let's take BTEL as an example. Is it a cheap stock? the price is only 50 though. It's should be cheap right? But is it undervalued stock? Well, according to our valuation model, the intrinsic value of BTEL is around 30. Hence, if it is sold around 50 then it is almost 70% too expensive. Let's take GGRM as a comparison. GGRM last traded price was 5500. It is 110 times BTEL's price. Looks expensive huh?? According to our valuation model, the intrinsic value of GGRM is 8400. It is actually undervalued and if it is sold at 5500 it is quite cheap.

Buying an undervalued stock is less risky than buying a cheap stock. Undervalued stock has so-called margin of safety, which is the positive different between the intrinsic value minus the price. After buying the undervalued stock, what we have to do is sit back and relax until the market realize the true value of the stock. Only after that we could realize our profit. We have provided some sample of undervalued stocks in our StockPicks section. But don't forget to do your homework and master the stock valuation to find the undervalued stocks by yourself.

('',)