What the Heck Are Value Stocks? Portfolio Review
Unpacking the Basics of Undervalued Opportunities in the Market
In 1999, Warren Buffett was mocked for missing the internet boom. His stodgy portfolio of Coca-Cola, banks, and insurance companies looked like a relic of a bygone era. Meanwhile, anyone with a .com in their name was doubling overnight. Buffett’s response? “The fact that something is cheap doesn’t make it a bargain.”
A year later, the dot com bubble burst. And suddenly, those boring companies—factories, railroads, manufacturers—looked a lot more attractive.
This cycle repeats itself over and over. Value stocks get ignored, then rediscovered. They go from relics to hidden gems, to relics again.
But what exactly is a value stock?
The Textbook Answer (That Almost No One Uses in Real Life)
A value stock is, in theory, a company that trades below its intrinsic worth. Metrics like price-to-earnings (P/E), price-to-book (P/B), and dividend yields are used to separate cheap stocks from expensive ones. Think of it like bargain shopping—finding a $100 bill on sale for $60.
Sounds simple, right? Except the stock market doesn’t work like a retail store. A company might be “cheap” because it’s failing, not because it’s overlooked. A $100 bill marked down to $60 is a steal. A $100 bill that’s been through the shredder? Not so much.
The Real Definition: A Bet Against FOMO
Markets are cyclical and it fluctuate between growth and value stocks. 👆
Value investing is less about numbers and more about patience.
It’s a bet that human nature doesn’t change—that investors will always chase what’s exciting and ignore what’s dull.
High-flying growth stocks—AI, crypto, EVs—grab all the attention. Value stocks are what’s left behind. The companies that make steel, sell insurance, and manufacture toilet paper. They don’t have billion-dollar burn rates or moonshot potential. They just... exist.
And that’s the whole point.
At the extremes, markets get irrational. Just like they overpay for hype, they also underpay for stability. When people rush into the “next big thing,” they forget about the old big thing. And sometimes, that’s where the best opportunities are.
The Best Value Stocks Are the Ones No One Wants—Until They Do
The trick with value stocks isn’t just finding cheap companies. It’s finding the ones that will become less cheap over time. Some businesses stay undervalued forever because they’re bad businesses. Others get rediscovered because the world suddenly remembers they matter.
In 2020, oil companies were “uninvestable.” By 2022, they were the best-performing stocks on the planet.
In 2010, bank stocks were dead money. By 2016, they were compounding wealth at double-digit rates.
In 2009, real estate stocks were left for dead. In 2012, they were up triple digits.
The moment value stocks become obvious is usually the moment the opportunity is gone.
Why Most People Can’t Do It
Value investing sounds easy, but it’s excruciating in practice. Buying unloved stocks means looking wrong for a long time. It means owning things that get no love on CNBC, that underperform in bull markets, and that make you question your sanity.
But history shows that patience wins. Hype fades, fundamentals come back in to favor. Eventually, capital flows back to what works, not what excites.
Why Now Might Be the Best Time in Years to Buy Value Stocks
For the past decade, growth stocks have dominated. Zero interest rates made profits tomorrow more valuable than profits today, fueling an era where hype mattered more than cash flow. But that era is over.
Interest rates are high. When money isn’t free, investors start caring about things like earnings and cash flow.
Inflation is sticky. Companies with pricing power—many of which sit in the value bucket—become more attractive.
Valuations are stretched. The gap between expensive tech stocks and unloved value stocks is near historic extremes.
Markets tend to overcorrect. Just as value got too cheap in 2000, 2009, and 2020, we may be there again today. Investors have spent years chasing the next big thing. Eventually, they’ll come back to what actually makes money.
So what the heck are value stocks?
Right now, they might just be the best trade in the market.