How can anyone define “value”?

When thinking of value, think of this: What would a company be worth to another company as a business? Every company has a certain value, which can be fairly well-defined, when viewed in this light. But this is a far different concept of value than the one under which Wall Street operates.
The actual value of a stock—as a business—is only fleetingly related, if it is related at all, to the gyrations of the stock market. Again, depending on shifting earnings forecasts or interest rate fluctuations, stocks can move all over the place, like a ship passing another ship on a foggy night, without even knowing it’s there. The only time this concept of value matters is when someone is willing to step up to the plate to pay that value. In other words, when a takeover bid takes place.
My concept of a “value” situation, therefore, is: stocks that are selling at clearance-sale prices, significantly below their value as a business, where there is a reasonable possibility that someone will step up and offer to pay that value, thereby forcing the stock market to reflect that value in the stock price.
When this happens, a normal, run-of-the-mill stock that is at the mercy of all of the variables discussed here becomes a superstock. It immediately rises to its true value level—as a business— and it is no longer subject to the whims of the stock market and all of the unpredictable variables that determine where most stocks trade.
You may think that choosing stocks that are likely to become takeover targets is an impossible task. The reason why you may think this way is that you’ve probably heard this refrain over and over again from Wall Street commentators who are obsessed with earnings forecasts and stock market projections and who have no experience when it comes to selecting logical takeover candidates. But picking takeover targets is notan impossible task.
As an individual investor, you can uncover neglected and undervalued stocks that are not only selling at a discount to their value as a business, but that also have a reasonable possibility of being forced higher by a takeover bid.
By the time you finish this series of posts, you will look at the stock market and at stock selection in an entirely different way. You will become aware of news items and the availability of certain types of information that most investors are completely unaware of. You will be on the lookout for superstocks.