Signs that stocks are undervalued!

Investing is not all that difficult. What all investors need is a sound valuation technology, information surrounding the company of concern and the corporate actions of others.

Typically, one example that a stock is undervalued is when you see the insiders buying shares. You don't want to just see one insider buying shares in the open market. You want to see a significant level of purchases. You want to see purchases from the heavy weights of the company, namely the ceo, cfo & chairman of the company. For more regarding insider trading, you can read my previous posts on it(jan 15 monday 2007)http://valueinvestorhaven.blogspot.com/2007_01_01_archive.html

And for insider trading resources, one can use www.secform4.com , www.form4oracle.com or www.sec.gov and access form 4 filings of the company's insiders.

Another powerful indicator that a stock is undervalued is when investor greats are buying the shares of the company. If both the insiders and investing geniuses are buying up the company, it means there is a possible consensus that both the insiders and these investing geniuses agree that the stock is undervalued. Furthermore, if the investor is a value investor, one can assume to a certain extent(caveat emptor) that a sound valuation technology has already been applied to valuation of the company. In addition to that, one can investigate the investing genius further to find out if the investor conducts any form of inquiry with management. This will help boost one's confidence.

The last powerful indicator which can help an investor identify an undervalued stock is when the company is buying back its own shares in the open market. When a company buys back its shares in the open market, it not only means that the company is undervalued. Also, it serves as a sign that the company's executives are interested in increasing the wealth of its current shareholders. For example, if company A had 10 shares and $10 in earnings.Each share will garner $1 in earnings. Lets say the company buys back 5 shares. It then only has 5 shares left in the. With $10 in earnings, each share now gets $2. And the shareholders get richer and richer. So often times, a company buying back its stock not only a powerful indicator but also a catalyst.

A very recent example is Coca Cola (ticker KO). The company had a share buyback scheme and also its insiders and several gurus were buying the stock. Then, its share price was around $44. Now it is $51.75 and i believe it is worth quite a bit more. Herb Allen, a businessman with a privately held investment firm also bought into coke's shares. On top of that, Warren buffet still owns a huge stake in the company. With its growing moat and earnings projected, it isn't to hard to imagine then that coke was undervalued. A Wonderful company at a reasonable price!