Stocks that are undervalued trade below their assumed value. Although they often have a track record of profitability and the potential for long-term growth, they haven't been recognized by the stock market.

"I think about something that I love going on sale," says Ali Swart, a CFP at Waldron Private Wealth, based in Pittsburgh.

When you shop a sale and find something worth $100 but on sale for $75, that could be considered undervalued. A stock that is undervalued trades below its market value.

Undervalued stocks are shares of a company trading at a price lower than their intrinsic or true value, often due to market inefficiencies, negative sentiment, or temporary setbacks. Investors identify them using fundamental analysis, examining metrics like the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and discounted cash flow (DCF) models. These stocks may be overlooked by the broader market but have strong financials, growth potential, or competitive advantages. Value investors, like Warren Buffett, seek undervalued stocks to buy them at a discount and profit when the market corrects their price. However, risks include prolonged undervaluation or hidden financial issues. Proper research is essential to distinguish true bargains from value traps. Investing in undervalued stocks can yield significant long-term gains if selected wisely.