Profit from hidden value

Article Excerpt

By “hidden value,” we mean a company’s valuable assets that fail to get the attention they deserve. That can include, for example, its brand names, loyal clientele or real estate. When those assets are largely ignored, or hidden, the company’s shares trade for less than they’re worth. That means investors can buy the stock at effectively discounted prices. Sometimes, of course, a company’s hidden assets stay hidden for a lengthy period. But our investing advice is that as long as a stock also has more-obvious appeal, such as long-term growth prospects or a reasonable price-to-earnings ratio, you have what we call the best of all possible investment worlds: a “heads-you-win-tails-you-break-even” situation. Moreover, if a stock with hidden assets gets cheap enough, it attracts value-oriented investors. Its low price may also invite a lucrative takeover bid that otherwise might never have happened. That possibility tends to support the stock’s price if it runs into temporary difficulties. It can be extraordinarily profitable to invest in…