What Makes a Stock a Most Undervalued Stocks constituent?
This screen identifies high-quality companies trading at deep discounts by filtering for P/E ratios under 12x and ROE above 8%. By targeting these thresholds, investors can uncover opportunities similar to Warren Buffett’s 2016 investment in Apple, which he purchased at a valuation significantly lower than the broader S&P 500 average.
Filter for Earnings Yield
We restrict P/E to 12x to avoid overpaying, similar to how investors avoided the 2000 dot-com bubble where Cisco traded at over 100x earnings.
Validate Profitability
An ROE of 8% ensures the company generates returns, unlike the 2015-2016 period when many energy firms had negative ROE and eventually went bankrupt.
Ensure Tradability
A $500M market cap floor prevents liquidity traps, a lesson learned by investors in 2020 who struggled to exit micro-cap positions during the COVID-19 crash.