Calculate the price-earnings ratio by dividing the market price of the stock with the earnings per share (EPS). Identify the underpriced stocks from the list of price-earnings ratios estimated. A low price-earnings ratio is an indication that a stock has a potential for growth and can be undervalued. Diversify your stock positions by investing in at least five to 10 stocks for small portfolios in order to keep the transaction costs reasonable. For larger portfolios, you should hold from 20 to 50 different stocks in order to gain maximum diversification benefits.
