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Thursday, November 24, 2022

How To Find Undervalued Stocks With Interactive Brokers

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Every trader or investor dreams about finding undervalued stocks and shares. They know that if they land upon a couple of them, they can explore infinite growth opportunities. In every trading market, in different parts of the world, here are companies and shares that have been undervalued for some reason or another. 

It is true that great stocks and shares do not go unnoticed for a long time. In other words, financial pundits, trading algorithms, and economic research think tanks are quick to identify them and make them famous. This means that spotting emerging opportunities is critical when it comes to undervalued stocks. 

In this resource article, we are going to explore more on what undervalued stocks are all about. We are going to list down four key ways, traders and investors can spot and identify undervalued stocks. Additionally, we are also going to look at how platforms like Interactive Brokers have made it easy to spot such opportunities in the last few years. 

What are Undervalued Stocks?

Every stock is quoted at a price that depends on certain factors. The market takes into consideration the following- 

  • Price to Cash Flow Ratio (FCF)
  • Price to Earnings Growth Ratio (PEB)
  • Price to Book Ratio (PB)
  • Price to Earnings Ratio (PE)

In very simple words, an undervalued stock is one that has been offered or quoted at a lesser price than what should have been its fair and just value. For traders and investors, this means finding quality stocks and shares that are found to be priced at a value that is lower than what it should have been. 

It is best to make a differentiation between stocks that are undervalued and useless stocks that are cheap. In the case of the former, these are shares of growing companies that are set to increase in the near future. In the case of the latter, these are failed corporations, whose stock prices have decreased because of business failure. 

According to financial experts, stocks can be undervalued for any of the following reasons- 

  1. The company whose shares are undervalued is not well-known or recognizable. It stays out of the press and its owners do not make a lot of noise or engage in press operations.
  2. Sometimes negative press, often undertaken by competitors results in the creation of undervalued stocks. This negatively affects perception while the reality is different.
  3. Market crashes that can happen because of natural emergencies like the pandemic can lead to loss of confidence in some companies of a specific sector.

Interactive Brokers: What is the platform all about?

For the last few decades, Interactive Brokers has been one of the leading online trading platforms. In fact, it owes its origin back nearly four decades. In 1983, it was one of the forerunners that introduced technological inputs to help traders and investors on its platforms. 

The firm currently has a consolidated capital of over ten billion dollars. The S&P has rated Interactive Brokers as ‘Investment Grade’ in its latest round of ratings. Ever since the outset, the platform has managed to create a niche for itself in the field of finding undervalued stocks. 

Its latest tech tool/software called Global Analyst has been in the news for all the right reasons. The tool helps traders and investors compare stock options in different companies and understand them through a series of financial trends and projections. 

At the end of the day, the goal of Interactive Brokers through its tool Global Analyst is to help make informed decisions and choices. Not only can you do research, but also buy and sell the stock in 27 different currencies in 135 international markets. The tool offers the following breakup-

  1. Continent
  2. Country
  3. Niche Industry
  4. Market Cap
  5. Currency Value
  6. Ratios (P-E-G)

Experts point out that an Interactive Brokers review shows that the platform offers a diverse range of financial services to investors, hedge funds, trading corporations, financial institutions, fiscal advisors, wealth managers, and commodity brokerage firms.

List of 4 Important Ways to Find Undervalued Stocks in 2022

  1. Use a World-Class Trading Platform-

If you are a trader or an investor that wants to compromise on nothing but the best, you need to choose a platform that can help you achieve what you want. Using a credible, reputed, and established platform that has a healthy integration of technological tools and software can help you get the edge you are looking for. Data and figures can say a lot when it comes to undervalued stocks. Rather than going with the gut instinct, it is best to make rational decisions. 

  1. Check out the Cash Flow Ratio of a Company-

Some of the world’s leading traders pay a lot of attention to a company’s FCF ratio. Cash Flow is what determined the health and stability of a business organization. This simply means looking at the flow of money coming in and going out of an organization. If the money coming in is less than the money going out, it means that the company has a healthy cash flow ratio. This also means that the company can make growth investments in the future. 

  1. Focus on the Debt-To-Equity Ratio of the Company-

While having debt or liabilities is not the only basis for identifying undervalued stocks, you need to pay attention to it. If a company has massive amounts of debts, it means that it depends on heavy lending to fulfill its operational costs. You need to compare the debt with the shareholder money in the company. Additionally, comparing the DE ratio to other competitors in the industry niche can help shed light on whether the stock is truly undervalued or not. 

  1. Does the company give out Yearly Dividends to Shareholders?-

Evert profit-making company gives out yearly dividends to its shareholders as a way to reward them for their monies and confidence. The annual dividend needs to be divided by the price share of the stocks. Most investors and traders always prefer dividend-yielding companies as they are far more stable and have strong financial foundations. If a company is offering dividends for the last three years, you can bet on it to grow even further in the future. 

The Final Takeaway

Traders and investors need to keep their ears close to the market. This is because undervalued stocks are often corrected by the markets within a short span. Doing your individual research, spotting opportunities, listening to what experts have to say about rising sectors, can all help you make an informed decision. If you would like us to assist you in spotting the best-undervalued stocks of 2022, please reach out to us in the comments below.

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