Value investors use a variety of tools to actively look for stocks that may be being disregarded. One of the principals of value investing is that institutional investors and analysts overreact to the news. When this happens, it’s possible for a stock to get decoupled from its fundamentals. This can cause a stock’s price to drop lower than the company’s book value and the stock can become undervalued.
The good news for investors is that there are a variety of online tools such as stock screeners that make it easy to find undervalued stocks. But investors can also look beyond the numbers to see if a company is undervalued. For example, a company that has a proprietary formula or manufacturing process may have a unique selling proposition that allows it to offer consumers lower prices.