Value Stocks US — Multi-Factor Screen for Cheap, Profitable Companies on NYSE & NASDAQ

Value investing is buying stocks at a price below their intrinsic worth — a margin of safety that limits downside while providing upside as prices converge toward fair value. Formalized by Benjamin Graham and David Dodd in Security Analysis (1934), and popularized by Warren Buffett, value investing focuses on P/E, P/B, dividends, earnings stability, and balance sheet strength as indicators of cheap price relative to business value.

Low P/E and P/B (cheap on both earnings and assets), positive net income (financially viable), positive equity (solvent), and market cap above $300M. Multiple simultaneous criteria prevent single-metric cheapness — a company with very low P/E but deteriorating P/B or negative equity is not a genuine value candidate.

The academic evidence supports the value premium over full market cycles, though the growth decade of 2010–2020 tested value investors' patience severely. Research shows the value premium is persistent but requires long holding periods (5+ years) to reliably manifest. The most successful modern value investors combine cheap valuation with quality filters — avoiding value traps by requiring positive earnings quality alongside low multiples.

Eugene Fama and Kenneth French's foundational 1992 paper documented that stocks with low Price-to-Book ratios systematically outperform high P/B stocks over long periods — the HML (High Minus Low book-to-market) factor. This was one of the first academic confirmations of the value premium that value investors had observed practically. The factor has been replicated across global markets in subsequent decades.

A value stock is cheap relative to its current or normalized earnings and assets, with a recoverable or stable fundamental outlook — the price will eventually reflect the underlying value. A value trap is cheap for structural reasons that won't reverse: the business model is deteriorating, competitive position is eroding permanently, or management is destroying value. Identifying the difference requires fundamental research beyond the ratios.

Traditionally, P/E below 15 is Graham's threshold for value stocks. More broadly, stocks with P/E in the bottom quartile of the market (historically below 12–15) are 'cheap' by value investing standards. The relevant benchmark is relative — P/E of 12 is cheap for most industries, average for utilities, and very cheap for technology. Sector context is essential.

P/E measures cheapness relative to current earnings power. P/B measures cheapness relative to balance sheet asset value. Low P/E with low P/B means the company is cheap on both an income and an asset basis simultaneously — the combination Graham explicitly specified. Stocks cheap on only one measure may have a reason for that specific metric's cheapness that the other metric exposes.

Value investing historically requires patience — a minimum 3–5 year horizon to allow price-to-value convergence. The value premium manifests most strongly over 5-year periods. Short holding periods (under 1 year) expose value investors to significant momentum headwinds — value stocks often underperform in the near term while growth stocks outperform, reversing over longer horizons.

Value stocks tend to outperform in: late bull markets, early to mid recession recoveries, rising interest rate environments, and periods of low economic growth expectations. They tend to underperform during: technology-driven growth cycles, falling interest rate environments (which inflate high-duration growth stock valuations), and periods of very high earnings growth expectations. Understanding the macro context improves value investing timing.

Value investors typically hold 15–30 positions for adequate diversification. Fewer than 15 exposes the portfolio to significant stock-specific risk. More than 30–40 begins to dilute the impact of the best ideas. Graham recommended 10–30 diversified positions. Diversification across sectors within the value screen is important — concentrated value portfolios in a single sector amplify both the upside and downside of that sector's fortunes.