A value investing strategy is a good choice for investors seeking exposure to companies or businesses that are trading at a discount to its intrinsic value . Value stocks are those that tend to trade at a price lower than their fundamentals (i.e. earnings, book value, debt-equity, price to sales, etc.). These companies (and thus the value investing style) tends to be very popular due to the sudden rerating on account of value unlocking triggers coming through in these companies / sectors.
Stocks can be undervalued for several reasons – there could be an overreaction to bad news, the sector in which the company operates is out of favour, if the company is just starting to turn around after being in distress, or just plain market irrationality at times.The value Investor then picks these unsought stocks that are believed to be trading at less than their assessed values, and when they bounce back to their real worth (or may be more than it at times), could stand to gain handsomely.
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