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Stocks to Buy

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How to Find the Best Undervalued Stocks to Buy Now

When looking for the best undervalued stocks to buy now, you can't just consider those that have lagged the broader market.  

Many companies that are down for the year in what has been a strong stock market have declined for solid reason and the near and intermediate-term outlook is still weak.

While there is a tendency for these undervalued stocks to eventually revert to the mean, you can increase your odds of a successful contrarian investment by selecting those that are also cheap on one important valuation measure.

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Energy Stocks to Buy Now: Two of the Best "Pick and Shovel" Plays

If you could pick stocks to buy among the companies tied to the California Gold Rush, miners would not have been your best bets. 

The miners were not guaranteed to get rich. While some of them did in spectacular fashion, many went completely broke.

One subset of those who flocked to the region actually did very well for themselves. They were the ones who ventured out not to look for gold but to sell supplies. It may not have been as exciting as digging for gold, but the profits were sure and steady.

Merchants made a fine living and built fortunes selling axes, pans and other items to the masses of gold hunters flocking to the region.

Business was so good that one firm in New York took to the region to sell tents, bedding and denim pants to the miners.

Indeed, young Levi Strauss experienced quite a run of success in this endeavor…

The same profit distribution has been true over the years in the oil and gas industry to some degree. Much like the Gold Rush, there are risks associated with the search for oil and gas exploration and production.

Although they cannot always escape the economic cycle of the industry, the company that sell supplies are not exposed to as much high-cost and risk as the exploration companies are. That's why many of these suppliers have managed to stay in the black, while the exploration and production companies have struggled for profits.

And it's why some of the best energy stocks to buy now are the supporting players in the continued exploration process.

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Why Insiders Love these Stocks to Buy Now

One of the most powerful positive indicators of stocks to buy is insider buying by officers and directors of a publicly traded corporation.  

There is often a good reason why an insider buys stock in the company he works for and it is the same reason you and I buy a stock: He or she thinks it is going to go higher in the months and years ahead.

The big difference is that insiders know more about the direction and finances of the company and are in a better position to make an informed decision. Both research and practice shows that following the insiders often leads to excess profits.

Following insiders when deciding on stocks to buy has been a reliable approach to selecting investments over the years.

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How to Find the Best Cheap Stocks to Buy Now

If you want an investment priced at a bargain with huge growth potential, it's a great time to hunt for cheap stocks to buy now.

So far this year the stock market has put in a solid performance with the S&P 500 up a little more than 17% and the Dow Jones Industrial Average rising a bit more than 18%.

It has been a very broad advance with the aggressive U.S. Federal Reserve policy pushing money into a wide range of securities.

About 470 of the S&P 500 constituents have risen so far this year and 29 of 30 Dow issues are higher in 2013. There is a strong opinion among major market strategists that as long as the Federal Reserve keeps interest rates at or near zero, money will continue to flow into equities.

If this is the case, then the lagging issues may well be bargains with high profit potential.

The key to identifying to bargain issues is to apply some measure of valuation to identify those stocks that are mispriced by the market and may move higher.

Many of the stocks that are down including former tech darlings like Apple Inc. (Nasdaq: AAPL) and EMC Corp. (NYSE: EMC) are struggling to provide the type of earnings and sales that will get growth enthusiasts excited enough to begin buying the shares again.

Others like J.C. Penney Company Inc. (NYSE: JCP) are experiencing severe operational and financial issues that may preclude them from a strong price recovery anytime soon.

One measure of value used by many value investors is the price-to-book-value ratio. This is simply an accounting measure similar to a net worth statement. When companies fall out of favor and trade for less than book value they can be considered a bargain.

The shares may be out of favor for many reasons. It could be part of a sector that's going through the down portion of its economic cycle, but eventually the undervaluation attracts investors and invites takeover offers that more closely reflect the asset value.

Look for those underperforming S&P 500 stocks that trade for less than book value as potential bargain issues with strong recovery potential.

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Eisman: Best Housing Stocks to Buy in 2013

In New York City last week investors from around the country gathered for the Ira Sohn Conference to pitch their lists of the best stocks to buy in 2013.

One of the more interesting presentations this year featured Steve Eisman of Emrys Partners, who gave a presentation that was very bullish on the prospects for the U.S. housing market.

While many investors have proffered opinions of the strength and validity of housing market performance, investors should pay especially close attention to Eisman when he speaks on the subject.

Eisman has shown he knows how to evaluate and profit from this market. He successfully profited from the market top in 2007.

Eisman was featured in Michael Lewis' book on subprime mortgages, "The Big Short," as one of the investors who made huge bets against the housing market at the top of the bubble and raked in billions of profits.

Now, he's picking the bottom. If he's right again, the profits could be just as large on the upside as they were during the collapse.

In his Ira Sohn presentation, Eisman pointed out that monthly payments as a percentage of income for mortgages is at an all-time low of just 14% and inventories of available homes are at a multi-year low. He thinks the growth is just beginning, and aided by very low interest rates we could see strong growth in the industry for several years.

He listed several of the best housing stocks to buy that would allow investors to profit from this continued recovery.

He favors home builders that have substantial land inventory as we go into the recovery. Those builders who have built up their land holdings over the past couple of year should amass substantial profits form reselling land purchased on the cheap.

Here are three housing stocks to buy in 2013, according to Eisman, including what he calls the "most powerful" play in the sector this year.

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Why These Are Among the Best Stocks to Buy Now

One of the most successful long-term strategies when hunting for the best stocks to buy is contrarian investing.

It's a rather simple strategy: buy something when it is out of favor and everyone else is selling, which leads to bargain prices. Then wait for sentiment to turn, sell and pocket your profit.

Many contrarian investors are taking a long, hard look at one particular sector: gold miners. This is a sector that has not only been battered by falling prices for the gold they mine hurting profitability, but also a sector plagued by poor management at many companies.

But a closer look shows why some of these miners are among the best stocks to buy now when prices are low and potential is soaring.

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Stocks to Buy: Why Warren Buffett Is Hunting in Europe

Investment guru Warren Buffett is looking for stocks to buy now in struggling Europe- a region many investors refuse to touch thanks to the destructive Eurozone debt crisis.  

But the Berkshire Hathaway Inc. (NYSE: BRK.A; BRK.B) CEO told CNBC he's bought a couple smaller businesses in Europe over the last 12 months and also took positions in some European equities.

"We've bought some European stocks," Buffett said. "And the fact that there are troubles in Europe, and there are plenty of troubles, and they're not going away fast, does not mean you don't buy stocks. We bought stocks when the United States was in trouble, in 2008 and it was in huge trouble, and we spent $15.5 billion in three weeks in between September 15 and October 10."

One reason for Buffett's interest in Europe: plenty of cheap buys.

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Stocks to Buy: Meet the New Defense Winners

One segment of the stock market that is widely ignored right now is the defense sector – but as contrarians know, that means there are hot stocks to buy now if you know where to look.

The reason defense is shunned is that future defense budgets will be cut to rein in government spending and hopefully reduce the U.S. budget deficit.

Some programs have been hit by the sequester. Other initiatives are winding down as the endless flow of dollars that has been seen since 9-11 is slowing.

The most recent budget proposals call for reducing defense spending by an additional $150 billion over the next 10 years. That's on top of the $487 billion of cuts already in place and the $41 billion spending cuts mandated by the sequester.

All of this has dampened enthusiasm for defense stocks. While some of the larger defense companies have rallied this year most of the sector has been moribund and is lagging the overall stock market. It is very difficult for analysts and investors to determine which stocks will make attractive opportunities when no one yet knows exactly how much may be cut from the overall budget.

But not all stocks will suffer.

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