There are value stocks, and then there are value traps. The former you want to own; the latter … well, obviously, not so much.
How do you tell the difference? Well, that’s a great question — and it’s one that value investors have been grappling with since Ben Graham invented this style of investing almost 90 years ago.
Sure, you can apply all sorts of financial valuation metrics such as price-to-cash flow when looking at a particular stock, but sometimes the answer isn’t so obvious. As Warren Buffett once said, “Price is what you pay, value is what you get.”
Take Nvidia Corporation (NASDAQ:NVDA), the technology company that revolutionized computing. Its stock delivered a total return of 225% in 2016, making it the best-performing stock in the S&P 500. By the way: That came on the heels of a 66% total return in 2015, 27% in 2014 and 33% in 2013.
Today, Nvidia’s price-to-sales ratio is 10.4 — 5.5 times greater than where it was at the end of 2012. So NVDA is a value trap, right? Maybe … maybe not. Analysts continue to up its target price, suggesting its impressive run over the past four years isn’t over just yet.
So, what are 10 of the worst values on Wall Street? Read on and I’ll tell you.