In a recent publication, we unveiled a list titled "11 Ridiculously Cheap Stocks to Invest in," where we aim to highlight the investment potential of various undervalued stocks. Among these, Bausch Health Companies Inc. (NYSE:BHC) stands out, and in this article, we will analyze how it compares to other stocks deemed to be ridiculously cheap.

Just like savvy shoppers look for bargains in the commodity marketscrutinizing relative prices, pinpointing discounted products, and ultimately selecting the best value for their moneyinvestors in the financial market adopt a similar mindset. In both scenarios, the price at which an asset can be acquired is of paramount importance.

The ability to uncover hidden gems in a landscape filled with overpriced stocks distinguishes astute investors from their more impulsive counterparts. An investor who grasps the concept that value isn't solely determined by the item they purchase but rather by the price they pay is better equipped to identify a stock that may be overlooked yet possesses significant value.

To better understand what constitutes a cheap stock, it is essential to explore its two most prevalent interpretations. The first definition suggests that a stock is considered cheap if it has a low share price. The second and more widely accepted definition refers to an undervalued stocka stock that trades below its intrinsic value, which is assessed based on various factors such as earnings, revenue, or overall assets. Our analysis aligns with this latter interpretation, indicating that a cheap stock is one that is undervalued relative to its actual potential, making it an attractive investment opportunity.

One effective measure for identifying cheap stocks is the forward price-to-earnings (P/E) ratio. This ratio provides investors with insights into the amount they are effectively paying for each dollar of a companys earnings. A low P/E ratio can suggest that a stock is undervalued when compared to its competitors, its historical averages, and the broader market averages.

Recent research conducted by Hoover Capital Management (HCM) sheds light on the historical performance of value stocks versus growth stocks, utilizing the French High Minus Low (HML) factor. An astonishing analysis of 97 years worth of data, spanning from July 1926 to December 2023, reveals a compelling narrative in support of value investing. The study indicates that cumulative returns from value stocks have exceeded those of growth stocks by an impressive 3,000%. In simpler terms, value investing has yielded returns that are 30 times greater than those achieved through growth investing.

This assertion is further supported by research conducted by economist Victoria Galsband, which indicates that cheap stocks consistently outperformed growth stocks from 1975 to 2010 across all G7 nations, including Canada, the United States, Japan, and leading European countries.

Additionally, a separate study examining the impact of companies being added to or removed from the S&P 500 index offers further insights into stock valuations. It found that removals from the index often correlate with stock undervaluation, while companies added to the index tend to see their valuations rise. Research Affiliates has shown that companies removed from the S&P between 1990 and 2022 outperformed newly added companies by more than 5% annually. This reinforces our perspective that undervalued stocksoften referred to as cheap stocksare likely to yield greater returns.