To be honest, I am a fan of boring companies that are not given any attention by the media and the mass of investors. At the moment, most of the talk and writing is about tech companies or overvalued dividend stocks. It's not that these companies are bad and I wouldn't invest in them, it's just that they are too expensive for me at the moment.

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Why should I invest my money in more expensive shares when there is another way? If I were to buy a brand-new car at USD 50,000, I would not want to buy it at USD 60,000, but rather when it has been reduced to half of the original price.

So in 2022 I will continue to follow my investment approach of finding healthy undervalued stocks that will increase my wealth in the long term.

Which industries do I look into?

The companies I invest in tend to be so-called hidden champions. These hidden champions have a local monopoly and are not national or even international. They are very focused on their core business and require little to no capital to operate their business model. Most notably, these are restaurant chains, local banks, REITs or transport companies in North America that hold strategic positions in their respective business fields.

Furthermore, I understand these companies and know how they make money. Therefore, my recommendation is to only deal with those industries that you are 110% familiar with and that also mean something to you. The financial sector in particular is not for everyone. Here you need experience in banking as well as in the credit business. As a beginner, you should not invest in the financial sector. Rather focus on simple business models.

And how do I find healthy undervalued stocks?

The search is not that easy as it takes some work and effort to find healthy undervalued stocks. For this, I have developed a 3-step plan to help me in my search (more on this later).

Since we are looking for undervalued stocks, a favourable valuation is of no use if the financial situation of the underlying company is poor.

The basic criteria for a sound company that I always use are:

  • Return on equity > 15%
  • Debt to equity ratio < 0.8
  • Current ratio > 1

I find it very tricky to filter by P/E ratio, as P/E ratios vary widely by industry, so I may exclude perfectly sound investment ideas. Moreover, the P/E ratio in itself does not say much about whether or not a company is undervalued compared to its intrinsic value. For similar reasons, I don't like to filter by EPS growth rate, because a solid company with 0% growth can still be an interesting buy if the price is right.

Sometimes I add dividend yield > 1% as a criterion because I like to receive a steady dividend income. Another criterion I sometimes filter by is market capitalisation < USD 1 billion because smaller companies are generally less closely watched by analysts and therefore more likely to be mispriced.

I enter all these criteria into a stock finder such as Yahoo Finance or Finbox and this gives me a list of potential companies that suit me.

Of course, not all companies will be potential investments, but it's a start. I am sure that my approach will also bring you success.

Conclusion - Why I invest in healthy undervalued stocks?

Value investing in itself, in my view, is the safest money investment that deals with share investments. The answer is obvious... - I deal with the companies I invest in intensively and in detail. I can only recommend dealing with the topic of share investments and building up a long-term oriented portfolio.

By the way, it is really a lot of fun to find healthy companies and buy their undervalued shares. Especially when after some time the share price starts to rise. That's a great feeling.

Well, now I want to help you too. As I know that finding stocks to analyse is something that many private investors struggle with, but it's really not that hard.

For this, I have designed a step-by-step guide that will make your life easier.

Learn How to Invest in Stocks Wisely

Value Investing Made Simple - Proven & Concise Investment Guide for Beginners to Start Investing in the Stock Market.

About Alexander Kelm

Alexander Kelm is a passionate value investor and runs the website Wall St. Nerd. Here, the passionate value investor writes in-depth articles on the topic of Value Investing. Value Investing involves analyzing a company's fundamentals and can be characterized by an intense focus on a stock's price, its intrinsic value and the relationship between the two.

Alexander Kelm offers online courses on stock investing.

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