Putting a price tag on a stock is not an easy thing to do. We are trained in every aspect of life to associate value with price, but that does not hold true in the world of investing.
When you buy a television, for example, you can assume that a set that costs $1,500 should be a better quality television than one that costs just $500. Obviously, this is not always the case, but generally speaking, products with a higher price tag are considered better products that similar items with a lower price.
In investing, that is not the case. You cannot assume a $100 stock is a better stock than one trading at $50. You have to dig a lot deeper in order to determine whether or not a stock is fairly priced, and whether or not the stock is selling below its fair value.
Price and value are in no way linked on the stock market. The best way to get a handle on a stock’s value is by comparing its trading price to its earnings. The market tends to view stocks with a P/E of around 20 to be fairly valued. The S&P 500, at this time, has a P/E of 25.0, which suggests that the market is willing to buy stocks up to around that level in anticipation of future earnings growth.
If we can find stocks with P/E’s lower than 25, which are forecast to enjoy solid earnings growth, we can reasonably assume that the stock is undervalued, and has decent upside potential.
The following five stocks are all stocks that are you can buy now for a good value.