Private market value (PMV) analysis is a strategy that seeks to determine the amount a buyer would pay for a company in an acquisition. Arriving at a company's precise PMV can be extremely challenging. It involves making educated guesses about the dollar value of its underlying assets; the calculations vary from one industry to the next, and even among companies in the same industry. It's more of an art than a science, but that's what makes it the preferred method of top fund managers like Marty Whitman at Third Avenue Value and Bill Nygren at Oakmark.

Thanks to the flurry of mergers and acquisitions on Wall Street, PMV analysis is particularly in favor as a stock-picking strategy these days. "Because there's been so much activity, the market is starting to look at companies and ask, 'What if a corporate buyer paid cash for the asset?'" says Brent Jesko, a portfolio manager at Reinhart Partners, a money management firm based in Mequon, Wis., that specializes in PMV. "That's a different question than, 'What P/E ratio should a stock trade at?'"