In our recent publication, we presented a carefully curated list of 11 incredibly affordable stocks that present an appealing investment opportunity. In this article, we will specifically evaluate how Invesco Mortgage Capital Inc. (NYSE: IVR) positions itself among these remarkably cheap stocks.

The dynamics of investing in the financial market can draw interesting parallels to shopping for bargains in the commodity market. Just as consumers compare prices, search for discounted items, and strive to maximize the value of their purchases, investors must approach the stock market with the same level of scrutiny. In both scenarios, the price of an asset plays a crucial role in determining its attractiveness.

In a financial landscape crowded with overvalued stocks, the ability to identify hidden gems sets apart astute investors from those who make impulsive decisions. Smart investors understand that true value goes beyond merely the act of purchasing; it hinges significantly on the price paid. Those who grasp this concept are more likely to uncover undervalued stocks that possess significant potential.

To better comprehend what constitutes a cheap stock, we need to delve into its two most prevalent definitions. First, a stock may be classified as cheap simply due to its low share price. However, the second, and more widely accepted interpretation, posits that an undervalued stock is the essence of what we refer to as a cheap stock. Our analysis aligns with this latter viewpoint, asserting that a stock is considered 'cheap' when it trades below its intrinsic value based on fundamental metrics such as earnings, revenue, or total assets. Consequently, investors perceive such stocks as undervalued in relation to their true potential, rendering them attractive investment opportunities.

One effective metric for identifying cheap stocks is the forward price-to-earnings (P/E) ratio. This ratio enables investors to gauge how much they are willing to pay for each dollar of a companys earnings. A low forward P/E ratio can signal that a stock is undervalued when assessed in relation to its competitors, historical averages, and broader market trends.

A comprehensive report released by Hoover Capital Management (HCM) highlights the historical performance of value stocks in comparison to growth stocks, utilizing the French High Minus Low (HML) factor for analysis. The findings, derived from an extensive dataset spanning 97 yearsfrom July 1926 to December 2023strongly endorse the merits of value investing. Astonishingly, the cumulative returns of value stocks have eclipsed those of growth stocks by a staggering 3,000%. In simpler terms, value investing has provided returns 30 times greater than its growth-oriented counterpart. This assertion is further supported by research conducted by economist Victoria Galsband, which indicates that from 1975 to 2010, cheap stocks consistently outperformed growth stocks in all G7 nations, including Canada, the United States, Japan, and several leading European economies.

Another intriguing report examined the effects of companies being added to or removed from the S&P index on their respective valuations. The results indicated that removals from the index are often accompanied by stock undervaluation, while additions tend to be linked with overvaluation. A study by Research Affiliates revealed that stocks removed from the S&P index between 1990 and 2022 outperformed those newly included by over 5% annually. This finding further solidifies our position that undervalued stocksoften referred to as cheap stocksare more likely to yield superior returns over time.