Instruments of Increasing Enterprise Value: Undervalued Stocks

In the thesis paper the we intend to disclose and discover the notion of investment in undervalued stocks. Authors endeavour to testify that amongst fundamental enterprise valuation models there is the very one which is, effectively, can suggest the most optimal strategy for equity trade focusing on undervalued stocks for portfolio investments. Hence, to propose investors a sufficient way to analyse the investment potential, forecast return and develop a strategy for efficient securities investment, in order to outperform the market. Assuming market frictions in terms of accounting anomalies and its inconsistency for estimating fair stock price creation in the secondary market, there is no such a model which is said to be the most accurate in the deal. To mitigate the differences between the market value added and fair or intrinsic stocks prices, investors use various valuation techniques: CAMP, Fama-French, DCF derivatives, NCAV and others. In our paper, we will focus on comparing these and other techniques, but stating that NCAV is a superior choice in diverse situations. The study deploys application of valuation models on the same pool of financial statements of multiple companies. The created sample of portfolios then will be put through CAPM to estimate the return on portfolios formulated with various fundamental models. Based on studies, revealing NCAV being the model with the highest return among time-series, we are looking forward finding similar results but in comparison with other valuation techniques, however in specifically controlled conditions. As a result, for the paper, NCAV does not outperform the market consistently, however in order to do so it recommended to use other valuation techniques. NCAV requires specific market conjunction and cannot be named universal. Key words: valuation, undervalued stocks, NCAV, fundamental analysis, accounting anomaly.