What is a 'Large-Value Stock'

A large-value stock is the stock of a large company where the intrinsic value of the company's stock is greater than the stock's market value. A large cap stock is generally considered to be the stock of a company with a market capitalization of more than $10 billion. A value stock is contrasted with a growth stock in that a value stock is sometimes underpriced and pays a dividend while a growth company invests its earnings back into corporate growth instead of paying a dividend.

BREAKING DOWN 'Large-Value Stock'

The philosophy that underpins the strategy of seeking out and investing in value stocks whose prices are undervalued is the belief that the market has "gotten it wrong" and the price of the stock will eventually recover, leading to significant gains for the investor. Reasons for the market mispricing a value stock include management changes or corporate turnaround strategies that haven't yet been priced into the market. There can also be temporary disruptions to the company's market share or artificially depressed earnings. Essentially, the analyst working up the stock sees something in the company's future that the market hasn't yet recognized which the analyst believes will lead to increased prices as this future positive event comes to fruition. The stock's intrinsic value can be determined by using a valuation model such as discounted cash flow and multiples.

Pitfalls of Large-Value Stock Investing

One of the largest pitfalls of investing in a large-value stock is something called the value trap. The value trap springs from the classic investing idea that markets are efficient and if a stock's price is depressed then there is a legitimate reason for it. There is not some stock price savior out on the horizon that everybody is but that one particular value analyst is failing to see. A stock's market value can fall below its intrinsic value for a number of reasons.

For example, if a company seeks Chapter 11 bankruptcy protection, many shareholders could become concerned that the company will go bankrupt, and therefore sell their stock. If the company has enough assets to pay all of its liabilities, then there will be intrinsic value left in the company's stock. This value may be greater than the stock's market value, which results in a large-value-stock investing opportunity.

RELATED TERMS
  1. Value

    Value is the monetary, material or assessed worth of an asset, ...
  2. Return on Market Value of Equity ...

    Return on market value of equity (ROME) is a measure used to ...
  3. Relative Value

    Relative value is a method of determining an asset or company's ...
  4. Time Value

    The portion of an option's premium that is attributable to the ...
  5. Value Stock

    A value stock is a stock that tends to trade at a lower price ...
  6. Value Fund

    A value fund is a fund that follows a value investing strategy ...
Related Articles
  1. Investing

    How to Identify Mispriced Stocks

    Find out how to identify mispriced stocks. Learn about intrinsic and relative valuation methods based on fundamentals, and technical analysis.
  2. Investing

    How Value Investors’ Patience Has Been Tested

    Investors in value stocks are finding their patience tested. Does this strategy still work?
  3. Investing

    Discounted Cash Flow (DCF)

    Discover how investors can use this valuation method to determine the intrinsic value of a stock.
  4. Financial Advisor

    Is Texas Instruments a Good Value Play? (TXN)

    Find out whether investors and analysts believe that Texas Instruments would make a good value play at its current valuation, and learn more about its outlook.
  5. Investing

    3 Red Flags for Value Stocks (KMI, FCX)

    Assess the components of Warren Buffett's value investing technique, and analyze the additional financial metrics to consider when diving into today's market.
  6. Investing

    Does Active Value Investing Pay Off?

    Learn about a well-researched paper that explores why active value investors underperform, and how value investing might be beneficial for your portfolio.
  7. Investing

    5 Methods To Avoid Value Traps

    Learn about five key factors that can help investors identify and avoid value traps in their stock market portfolio selections.
RELATED FAQS
  1. Intrinsic Value vs Current Market Value

    Discover the differences between intrinsic and market values, what makes the former difficult to determine, and how investor ... Read Answer >>
  2. How Are Book Value and Intrinsic Value Different?

    Book value and intrinsic value are two ways to measure the value of a company. Find out which is known as the true value ... Read Answer >>
  3. If the intrinsic value of a stock is significantly lower than the market price, should ...

    Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >>
  4. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  5. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
Hot Definitions
  1. Risk Tolerance

    Risk tolerance is the degree of variability in investment returns that an individual is willing to withstand.
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  4. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
Trading Center