Want to know the difference between a cheap stock and an undervalued one? A cheap stock is one that’s priced too low but is going to remain at depressed levels. A bargain is a stock that is priced too low but is ready to correct that problem.
It’s an important distinction to make simply because it adds a “right time” component to a “right stock” philosophy.
To that end, here’s a closer look at not just three of the S&P 500’s most undervalued stocks, but undervalued names with charts that have dropped some key bullish technical hints of late.
GameStop
If you think a stock always, or even just most of the time, reflects the underlying company’s value, think again. GameStop (NYSE:GME) shares soared from the teens in 2005 to more than $60 by late 2007, when console gaming was all the rage. Less than a year later, GME shares were back to sub-$20 levels.
The immediate assumption might be that the recession hit game sales hard. It wouldn’t be an accurate assumption, though. While a lack of new compelling titles might have crimped video game publishers, GameStop’s earnings and revenue continued to rise at that time. In fact (and here’s an irony), it might have been the nature of GameStop’s business — retail sales of used games — that made the company so fruitful during that time; used games sell for about half of what new games sell for.
Whatever the reason, it worked. Even if the stock hasn’t reflected it yet, earnings have continued to swell since 2007, reaching a record-breaking $2.47 per share over the prior four quarters. The stock’s also near a record low P/E of 8.75, though the market’s starting to put two and two together. For the first time in years, GME is making more forward progress than steps back, having punched through a major resistance line early this year, and surviving the recent pullback with a higher low.
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