Deep Value Stocks to Consider Now

Deep Value Stocks to Consider Now

Jan. 26, 2024

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Four months ago, I came across an article about “deep value” stocks.

This article was from Goldman Sachs and it outlined its top 40 “deep value” picks. GS just had a blowout earnings report so they clearly know what they’re talking about.

And “deep value” to them meant stocks that are “good” companies that have fallen far, far below their “fair value”.

[Why so many “quotation marks”? Because all fundamental analysis is opaque, muddied, and ripe with subjectivity. It’s why I don’t love it.]

The Goldman list was very interesting, but I immediately thought there was a better way. Why rely on Goldman Sachs’ intrepid group of analysts when we could have something more concrete that also has mathematical certainty.

So, that day, I started creating tons of portfolios. I wanted to track what the experts say and see if technical analysis can do better. Granted, I’ve been tracking value stock portfolios since 2006, but this article opened Pandora’s Box.

I’m watching many portfolios now and created a document to update the results in real time. It’s useful to me. I thought it might be interesting to you.

One of the first portfolios I created back in October was a Deep Value portfolio. I wanted to put it up against Goldman’s list. How has it done since then?

My Deep Value Portfolio is up 17.32% (for an annualized gain of around 45%). The SPY is up only 10.6% over the same time period.

While I’m going to watch each portfolio I create for at least one year, I can create a new Deep Value portfolio anytime I like. All I have to do is run the proprietary scan. (Proprietary sounds so official.)

So, this past Sunday, I ran the Scan again, and, interestingly, it didn’t have many stocks on it. The scan back in October had 12 stocks on it. Here’s the list:

Of course, this is not a recommendation and there are immediately several objections.

One, the stocks are too low-priced. (Fair enough.)

Two, these stocks have had big drops on bad news. (Which of course, is exactly the profile of every Deep Value stock ever.)

Three, no one’s ever heard of them. (Maybe you have.)

Four, how would anyone hypothetically trade them?

As far as #4, the nice thing about value investing is that there is no stoploss. While I love trend following, I hate stoplosses. I always have. I can live with stops, but I don’t like them.

With deep value investing, you simply buy something deeply on sale, and hold it until it hits “fair value”. For this small list, here is my mathematical estimate of “fair value”:

  • ASYS: current price $4.21, “fair value” (fv) $9.13, potential upside to fv 116%
  • ENTA: current price $11.71, “fair value” (fv) $45.40, potential upside to fv 287%
  • POET: current price $0.94, “fair value” (fv) $5.52, potential upside to fv 487%

Could all of these stocks continue to go down? Yes.

Considering they’re low-priced, could they go to zero? Yes.

Will they exactly hit fv? Probably not.

Could they make huge gains if they merely get halfway to the target? Of course.

That’s the intrigue of Deep Value.

Again, these aren’t recommendations, just food for thought.

And I’ll be tracking this portfolio just for fun.

Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.