Many investors like to think of value stocks as bargains, but that does not necessarily mean that they are cheap. Value stocks are undervalued by the market, and investors choose these stocks with the hope that the market will correct the price in the future. Basically, value investors look for company stocks that do not accurately reflect the company's worth.
These stocks are undervalued by the market for a variety of reasons. One reason might be that a poor quarterly earnings report has temporarily reduced the company's stock price. Sometimes the company or its industry may just have temporarily fallen on hard times. This creates an attractive opportunity for investors who are interested in investing for the longer-term. Value stocks have a margin of safety, which means that the market has discounted the stock more than it should have and that the price at which the stock is trading, or market value, is less than the intrinsic value.
Value funds have a greater level of safety than potential for growth. The main risk involved is that the market may have correctly priced the stock, in which case its market value may never rise to meet its intrinsic value.
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