There are nearly 3,000 U.S. stocks listed in the broad-market Russell 3000 index, with thousands of depository receipts, pink sheets and other equities available for buying and selling. Whittling that list down to a portfolio of 70-90 stocks (as we prefer), or perhaps an even smaller selection, can feel like a daunting task. Fear not, there are some excellent tools out there to aid the search for undervalued stocks when building your portfolio.
Stock Analysis
Many custodians, such as Charles Schwab or Fidelity, offer complementary sell-side analyst research with brokerage accounts. Schwab, for example, offers reports from Schwab Equity Ratings. Morningstar, CFRA and Argus for tech giant Apple (AAPL). These reports vary in length and detail, usually offering a few key points, some recent stock-specific commentary and a short-term (12 months out or less) target price. These reports are helpful when looking for analysis on a specific stock in your portfolio or when trying to figure out what one might be missing in their own analysis.
Screening Tools
Finviz is a stock screening tool for investors and traders, offering free visualizations, charts and market news aggregation. Registered users of the site can track their portfolios, customize news feeds and keep tabs on performance. Finviz offers a small set of elementary company-level metrics that can help one screen the stock universe for trends or factors they may find of particular interest.
Undervalued Stocks
Subscribers of The Prudent Speculator receive a more curated list, which we’ve whittled down using our quantitative framework. The framework scores more than 3,000 individual stocks each day across a wide range of metrics. From there, we do a comprehensive review of important factors that may be unique to a certain company or aren’t possible to score with mathematics and large datasets. We publish our full list of currently held stocks in our Target Price list twice per month, along with a diverse set of fundamental metrics and the dividend yield for each stock.
Factors
In terms of finding undervalued stocks, simple screens based on specific factors can help narrow the pool, but empirical research shows that there isn’t one magic factor that predicts future investment returns. Over shorter periods of time, a specific factor or two may work well, causing a flood of interest and a rush of investor cash, but it’s nearly impossible to pick when or for how long that effect will stick around. Instead, we prefer to use a variety of factors that have historically been predictors of future returns over longer periods of time and apply those across the broadest possible universe. Of course, there’s a fair bit of qualitative and manual work that goes along with the mathematics, but we think the result of the effort is a diversified portfolio of under-appreciated stocks.
Conclusion
We think there’s not a single tool that does it all when it comes to investment portfolios. Even as professional investors, we use a variety of tools to manage our portfolios through a process we’ve been constantly working to refine and improve since the first TPS edition went to press in March 1977. Perhaps the most important factor in determining investment success is to have a thorough, replicable process that supports your individual financial goals and objectives. For some, that may mean a variety of newsletters to serve as idea generation tools, while others may prefer to enlist the help of professionals to manage complex situations.
Kovitz Investment Group Partners, LLC (“Kovitz”) is an investment adviser registered with the Securities and Exchange Commission. This report should only be considered as a tool in any investment decision and should not be used by itself to make investment decisions. Opinions expressed are only our current opinions or our opinions on the posting date. Any graphs, data, or information in this publication are considered reliably sourced, but no representation is made that it is accurate or complete and should not be relied upon as such. This information is subject to change without notice at any time, based on market and other conditions. Past performance is not indicative of future results, which may vary.