margin of safety

Margin of Safety Formula to Level Up Value Investing

The principles of value investing tell us to buy stocks when the price is below the intrinsic value, so there is a higher probability of the stock price appreciating in the future. The margin of safety is used to calculate the discount on the stock value before we enter the trade.

We share what the margin of safety is, and a list of bullish stocks with a healthy margin of safety to buy. So you can purchase value stocks while they are undervalued.

What Is the Margin of Safety?

The margin of safety is a metric to reduce the risk of investing in stocks, by calculating the differences between a stock's intrinsic value and the purchase price.

The principle of value investing developed by Benjamin Graham helps us estimate the intrinsic value of a stock by analysing a company's financial performance. To reduce the investment risk from random price actions against our expectations, we only purchase the stock when the stock price is lower than the intrinsic value, when the margin of safety is a positive number.

What Is the Margin of Safety Formula?

When the intrinsic value is greater than the stock price, the investment has a positive margin of safety.

Margin of Safety = Intrinsic Value - Stock Purchase Price

To speed up our search for value investments, SlashTraders' stock pickers include the Upside metric to calculate the upside potential of each stock.

Upside = (Fair Value - Stock Price) / Stock Price * 100%

Upside lets us see undervalued stocks in seconds. The greater the Upside is, the bigger margin of safety when investing at the current stock price.

What Is a Good Margin of Safety Ratio?

Since Fair Value is an estimation, we need a margin of safety to reduce risks in case the market goes against our expectations. The larger the margin of safety and Upside are, the higher confidence we have in the investment becoming profitable.

We usually look for an Upside of 50% or more to have a large enough margin of safety to purchase the stocks.

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Value Stocks With a Great Margin of Safety

The Bullish Value Stock list helps us find stocks with bullish potential. By filtering stocks with at least 50% Upside, we can find heavily undervalued stocks in seconds with great margin of safety.

50% upside
Filter value stocks with >50% Upside.

We sort the value stock list using the Upside to find value investing opportunities with a 189% to 50% bullish potential.

StocksDescriptionLastFair valueUpside
NSANYNissan Motor Co Ltd$7.17$20.75189.4%
VLKAFVolkswagen AG$180.25$382.68112.31%
VFCVF Corp$30.73$60.5997.17%
PKPark Hotels & Resorts Inc$14.44$27.8793.01%
LNCLincoln National Corp$35.80$66.9787.07%
PARAParamount Global$24.55$45.3984.89%
BAXBaxter International Inc$46.65$84.4481.01%
IIPRInnovative Industrial Properties Inc$93.13$166.1378.39%
GTGoodyear Tire & Rubber Co$11.50$20.3877.22%
BDNBrandywine Realty Trust$7.10$12.3573.94%
FSNUYFresenius SE & Co KGaA$7.27$12.4771.53%
KRCKilroy Realty Corp$40.92$69.4669.75%
SAMBoston Beer Co Inc$402.99$665.4865.14%
PYPLPayPal Holdings Inc$85.49$133.6856.37%
GOOGLAlphabet Inc$104.74$161.8054.48%
KSSKohl's Corp$34.93$53.6153.48%
LUVSouthwest Airlines Co$36.47$55.5952.43%

Now you know how margin of safety can reduce investment risks, you can use stock pickers to find value stocks to invest in.

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