(FORTUNE Magazine) – Everyone likes a bargain. But how do we know if stocks are really cheap, or if they just look that way? One tried-and-true method, favored by such grizzled value veterans as Bill Nygren at Oakmark, Marty Whitman of the Third Avenue Value fund, and Dick Weiss at Strong Opportunity, is known as private market value (PMV) analysis.

The concept behind private market value is simple: Determine how much a company would fetch if it were sold. "If I can figure out what the business--not just the stock--is worth, I'll have a good idea of whether it's a bargain," says Nygren.

To find companies that are undervalued now, FORTUNE enlisted the services of Reinhart & Mahoney, a money-management firm based in Mequon, Wis., that specializes in PMV. Over the past three years Reinhart has averaged a 3.7% annualized return--vs. a nearly 15% decline for the S&P 500--and gained an average of 10.5% since 1995 by focusing on companies that trade at least 30% below their PMV. Portfolio manager Brent Jesko screened 3,000 companies and, by comparing prices with recent mergers and acquisitions and dissecting balance sheets, pared the list to a dozen. We then ran the remaining names past a handful of portfolio managers and arrived at five that are poised to rebound.

Despite continued demand for its Huggies and Kleenex, Kimberly-Clark (KMB, $46) has been hurt by economic stagnation, price cutting at rival Procter & Gamble, and a recent dearth of new products. The company, valued at $72, is priced cheaper than toilet paper. What Kimberly Clark has going for it now is a $200 million cost-cutting plan and several new products on the way.

Another downtrodden name brand is Jack in the Box (JBX, $18). Like McDonald's, the chain is beset by waning demand for fast food. But Jack in the Box has been gaining market share and has a 14% hold in ten key states. This comes at a time when McD's is closing stores. What would it take to reach its estimated $30-a-share PMV? Same-store sales need to stabilize. That could be hastened by McDonald's recent move away from price wars. "Jack in the Box is well positioned in its markets," says Ann Miletti at Strong funds. Its broad menu gives it an edge over burger-focused competitors.

Among the many energy companies that have stumbled over the past couple of years is Anadarko Petroleum (APC, $45). Accustomed to 10% annual production growth, Anadarko's numbers were flat last year, and discovery costs soared. However, the company recently replaced its CEO with former CEO and current chairman Bob Allison, who has a loyal following among investors. By Jesko's reckoning, Anadarko's reserves alone make the company worth $71 a share.

Mercantile Bankshares (MRBK, $35) is also well run but bludgeoned. Based in Baltimore, the company operates 185 branches. Mercantile recently agreed to buy F&M Bancorp for $500 million. Its PMV of $54 is based on the value of its banking, asset management, and excess capital. And as a tiny player, Mercantile itself is a potential takeover target.

A world away from banking, electronic-component maker AVX (AVX, $9) has been hit hard. As a supplier to Nokia, Motorola, and IBM, it was hurt by the falloff in consumer sales. But unlike some peers, AVX did not go crazy expanding during the boom. The company has $500 million in cash and little debt. An $18 PMV seems reasonable. Analysts heartily disagree. But, says Jesko, "these guys once thought the stock was worth $100. They were wrong then, and they're wrong now."