If one is willing to look far and wide, potentially valuable opportunities can appear where it's least expected. By its nature, the investing media can only cover a fraction of the companies that are owned by the public. Businesses that are too small, thinly traded or choose not to publicize themselves are left alone only for the diligent investor to uncover. (For related reading, see The Value Investor's Handbook.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Hidden Gems
Motorcar Parts of America (Nasdaq:MPAA) could turn out to be a hidden gem. The company is in the midst of its largest acquisition which caused the company to delay its quarterly filing. Caught off guard, investors dumped shares leaving them at around $7 or roughly 75% of book value and trading at over six times forward earnings. Motorcar Parts is a leading supplier of alternators and starters to auto parts retailers and repair shops in North America. The auto parts industry is booming and MPAA should benefit from those tailwinds. A year ago shares in MPAA were trading for about $15. Once investors get comfortable with the acquisition, shares could move up as quickly as they pulled back. Just look at Standard Motor Products (NYSE:SMP), another provider of automotive replacement parts. Since September, shares have climbed by over 100% as investors caught on the growth story of the auto parts business. (To learn more, read Analyzing An Acquisition Announcement.)

Look out for Traps
Semiconductor company FormFactor (Nasdaq:FORM) looks more dead than alive. The company has a market cap of around $268 million against shareholder equity of approximately $411 million. Most of that book value is in cash and short-term investments. Trading at about $5.35 a share, FORM is debt free with $6.26 in cash per share and a book value per share of $7.48. What's the catch? The company is losing money. Losses are weakening the balance sheet. A great balance sheet is only as good as it lasts and if a business is burning cash, a superb balance sheet may be a trap unless the company decides to liquidate its assets. Despite the appealing balance sheet, investing in a balance sheet that is being weakened by a money-losing business is just as dangerous as investing in an overvalued businesses like lululemon athletica (Nasdaq:LULU) on promises of high growth. Both approaches can leave an investor poorer.

The Bottom Line
Finding value in stocks comes in a variety of ways. The fine line is deciphering between value opportunity and value trap. For investors, it's always best to first tackle ideas with a healthy dose of skepticism. (For additional reading, see Value Investing + Relative Strength = Higher Returns.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!