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Investors have fought through turmoil amid the most unusual circumstances this year. Recent months have brought ups and downs based on political events, innovative ideas, and the global pandemic. Strategies like value investing have been put under the microscope as some analysts begin to reconsider their positions.

What is Value Investing?

A value investment strategy focuses on the purchase of stock in companies that the investor believes are presently undervalued. The litmus test is the trading activity of these companies over a brief period of time.

Trading price, activity levels, or both, determine if a company is trading below par. Value investors swoop up extra shares for lower than average prices. Everyone loves a bargain, right?

Which Companies are Suitable for Value Investors?

Value investors seek companies that are trading below their book value. This intrinsic value is similar to the manufacturer’s suggested retail price (MSRP) of vehicles.

Stock analysts, not the manufacturer or company in question, set the suggested price in this case. They may use case studies, in-depth research, and even current news events to make their determination.

The idea behind value investing, or its counterpart growth investing, is rather simple. The strategy is based on how an investor thinks a company will perform.

Small startup companies with ingenious products or services are likely to fall into an expected growth category. The parent company or investment firm that seeds the money for such a start up may be considered a value investment opportunity.

Do Companies Move Between Value and Growth?

Trading markets can be bullish or bearish. Investors can be aggressive or conservative. Companies can be value or growth oriented.

Any of these labels are subject to change. In most cases, the change is gradual. Very little happens overnight in a normal trading market. When stock prices fluctuate wildly in a matter of hours, the catalyst for that change probably happened weeks ago.

The perception of a value stock or value company is somewhat left to the individual investor or analyst. For example, some investors prefer to trade in a specific industry or demographic region.

Value investors with such preferences may look at oil refineries trading for less than their peers, or stable but unknown South American companies. Both companies have potential for consistent increases, but will not be in the headlines tomorrow.