Appreciating the Undervalued

I was so caught up in studying the new-low list that I forgot to follow through on Monday's column. The University of Michigan's Ross School of Business not only has a list of stocks you should avoid, they list 40 stocks they believe are undervalued. They do not reveal exactly which metrics they used, but the website says they use value, momentum, quality and predictability. It is a combination of several successful academic theories and it produces an interesting list of stocks that might appeal to long-term investors. According to the website, the screen has beaten the market handily in eight of the last 10 years.

It's easy to see that momentum and value are heavily weighted in the 40-stock list, as many of them are former deep-value stocks where the price has begun to improve. It was not long ago that Bassett Furniture (BSET) traded at a fraction of book value and was wildly out of favor on Wall Street. The company is firing on all cylinders now, with three straight quarters of strong sales growth. The stock is now at a small premium to book value. Insiders have been buying the stock outright and exercising options and keeping the stock, so that's another academic theory at work. The company has plenty of cash and little debt and seems to have put the recession in the rear view. Basset is doing much better than many other consumer-related companies are....487 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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