It should come as no secret to anyone by now that I am a very research-driven investor. I consider myself a deep value investor at heart, and nothing excites me more than uncovering undervalued community banks. That is, without a doubt, my favorite segment of the market. There are a lot of reasons for that, but we'll get into those another time.

What I want to talk about today is how I approach investing and how you can use our new Benzinga ranking system to identify potentially lucrative opportunities.

Such as these five great buys that are showing market-beating momentum.

Now, I do an enormous amount of research. The bulk of my time isn't spent reading Wall Street research reports or tuning into CNBC to hear what the talking heads are saying. Instead, I spend my time reading reports, evaluating companies, testing different investment strategies, running data through financial and credit models, and refining our approach to investing.

I crunch numbers, analyze what works, discard what doesn't, and continuously refine my process.

Through all of this, me and the team have developed the new Benzinga ranking system. This ranking will appear whenever you pull up a stock, and it will show you how the stock ranks in four key areas: value, momentum, quality, and growth.

This allows you to mix and match different characteristics, whether you're looking for high-quality stocks with great growth potential or deep value stocks that also have strong quality indicators.

Over the years, we've become big believers in using value and momentum together. Our preferred approach is to have value stocks make up 50% of the portfolio and momentum stocks—especially momentum stocks with quality characteristics—make up the other 50%. We'll dive deeper into that another time, but today I want to share a simple but powerful concept with you.

Combining Value With Momentum

The folks at LSV Asset Management, a large mutual fund and managed account firm that follows a quantitative value-oriented approach, did extensive research on one slightly different idea: identify deeply undervalued stocks that are starting to show market-beating momentum.

The logic here is simple. These stocks are cheap, but more importantly, they're attracting buyers. This helps avoid one of the biggest pitfalls in value investing: the value trap.

A value trap is a stock that looks cheap on paper, but nobody cares. It languishes at a depressed price for years while investors sit around waiting for the market to notice.

Most people find that scenario difficult to stomach, and I don't blame them.

Using the Benzinga rankings, we can find stocks with high value scores. That means these companies are deeply undervalued across multiple metrics including earnings, cash flow, sales, and asset value. But then we take it a step further by incorporating trend.

Everyone knows trend following works as well. Thousands of people have made millions of dollars using a trend-based approach to the markets.

It is not fast paced and is not new so most traders ignore it.

That said, nobody likes value traps. So we added trend to the equation.

When we combine value and trend, we can find undervalued stocks that are starting to attract buying pressure. If institutions begin moving into a stock, full value recognition can come much faster, leading to massive gains in a shorter time frame.

We use three trend filters—short-term, intermediate-term, and long-term. Today, I want to share a few stocks with high Benzinga value scores that have now given a short-term positive trend signal.

Five Undervalued Stocks Showing Great Momentum

Then there's Titan Machinery (NASDAQ:TITN), a U.S.-based agricultural and construction equipment company. It's been out of favor, but it just got an upgrade from Baird, raising the price target to $25. The stock is at $17 now, and the trend has reversed on increasing volume—exactly what we want to see.

So there you have it—deeply undervalued stocks where the short-term trend has turned positive. Institutions are recognizing these companies as good businesses trading at fire-sale prices, and money is starting to move in. That's how we use the Benzinga rankings to uncover potential investments and trading opportunities.

We'll be diving deeper into this in the weeks and months ahead, exploring different ways to use these rankings to improve investment performance. But for now, keep an eye on these names, and we'll check back in soon.

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