Low priced stocks, just those words conjure images of excitement and wonder to most investors. More times than not, however, they are just images... or better said, dreams. But they don’t have to be.
There are many misgivings about buying stocks that have low prices. These sayings generally contain a shred of truth, but too many times they will steer you wrong.
Let’s go over some of these myths, sayings and otherwise false narratives that surround low price stocks. Breaking these bad habits may be just the thing to turn your portfolio around!
I Can Buy 1,000 Shares
This fallacy of an argument is rooted in simple math and a lot of greed. I am not saying it is bad to be greedy... you just have to pick your spots.
When an investor sees a low priced stock, something in the middle or low single digits, they often think they should buy 1,000 shares. The thought process usually leads to the idea that this $5 stock could become a $6 stock and I will have made $1,000.
That sounds simple enough, and technically it is true. The idea that I want to stress here is that sometimes a low priced stock could be even more important to your portfolio and an investment of only $5000 or $6000 might not be enough. Conversely, if you have a smaller overall investable amount, it could be too big.
Know your risk profile and allocate funds accordingly.
Easier To Double?
If I had a nickel for every time I heard this idea, I would already be enjoying my retirement in the south of France. So many times I have heard it is easier for a $5 stock to become a $10 stock than a $50 stock moving to $100. Let’s tackle this one from a mathematical perspective. A stock that moves from $5 to $10 has increased by 100%. If you move the decimal spot over one, then you get a $50 stock moving to $100. You have that same 100% move. Continued . . .
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Low-Priced Stocks with Sky-High Potential
Zacks is now revealing its top stock recommendations priced under $10 per share. Each is a high-quality company with prospects for gains of 2X and even more. Recently, our recommendations have generated returns as high as +129.6%, +129.9%, even +193.8%.1
Strong earnings growth plus other Zacks' indicators mark our rare Under $10s for sustained growth. Look into them today, and then ride the potential profits high and long.
See Top Stocks Under $10 Now >>
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Now you might think that more people would be able to, or willing to invest in a low priced stock, but that isn't necessarily true. In fact, the big institutions are known for NOT going after the little stocks.
At the end of the day, a stock's movement and potential to double is not a function of the price of the stock. Instead it is the underlying demand for the shares and the prospect for growth.
When you have the right recipe in a low priced stock then you really have something. Often times, investors are substantially rewarded, but they must show patience.
Institutions Cannot Hold Them
Over the years I have heard this one as though it was a whisper from on high. The big boys and girls that really run things consciously avoid these smaller stocks. At least that is what they want you to believe.
Having worked at large financial institutions in the past, I know there was a “$5 Rule” that stated a portfolio manager could not hold a stock priced less than $5. Thing is, that same institution held $3 stocks in the trust accounts and in the broader portfolio.
Talking out of both sides of your mouth is never a good thing. I can tell you the portfolio managers were discouraged from holding very low priced stocks, but it wasn't strictly forbidden. Just look at the history of stocks like SIRI and AMD - they have spent time below $5 and still showed up on 13F statements of ownership.
The biggest investment houses can hold single-digit stocks. The truth is, they really don’t want to hold that many of them.
The Important Truth
Investing in low priced stocks does have its pitfalls, but the rewards can be huge for getting in at such low levels. Often times when finding a good stock at a low price, even a small amount invested can become big dollars.
Buying in at say $8 makes it really easy to hold the stock at $16 even when there is a rough patch. It is important to recognize that just because a low priced stock is moving higher, there are still bumps in the road.
Investors should look for the stocks that have found a bottom and have seen earnings estimates move higher. Leveraging the Zacks Rank will give any investor a chance for success with low priced stocks.
Finding the Best Low-Priced Stocks
One of the easiest ways for you to find single-digit stocks with positive price trends and improving earnings is to follow my Stocks Under $10 portfolio.
Stocks Under $10 focuses on companies on the verge of big upward moves. We get in when the Zacks Ranks and other proven indicators point to success ahead, then ride them long and high. For example, we've closed out positions with gains as high as +129.6%, +129.9%, even +193.8% this year alone. 1
Now is a great time to join the investors following my live buys and sells. With the stock market having its best quarterly performance since 2013 – with small caps leading the way – we’re looking for a lot more double- and triple-digit gains in the months ahead.
And today, in addition to checking out Stocks Under $10, you are welcome to download our just-released Special Report, 7 Best Stocks for the Next 30 Days.
The 7 companies named in the report have positive earnings estimate revisions and solid forecasts. As a result, we believe they have the greatest chances of outperforming the market in the upcoming month.
But a word of caution: Your chance to download this report for free ends Sunday, October 7.
See our Stocks Under $10 now >>
Best,
Brian
Brian Bolan is our aggressive growth expert and the editor of the Zacks Stocks Under $10 portfolio.
¹ The results for the trades listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors.
Image: Bigstock
Myths and Misgivings about Low Priced Stocks
Low priced stocks, just those words conjure images of excitement and wonder to most investors. More times than not, however, they are just images... or better said, dreams. But they don’t have to be.
There are many misgivings about buying stocks that have low prices. These sayings generally contain a shred of truth, but too many times they will steer you wrong.
Let’s go over some of these myths, sayings and otherwise false narratives that surround low price stocks. Breaking these bad habits may be just the thing to turn your portfolio around!
I Can Buy 1,000 Shares
This fallacy of an argument is rooted in simple math and a lot of greed. I am not saying it is bad to be greedy... you just have to pick your spots.
When an investor sees a low priced stock, something in the middle or low single digits, they often think they should buy 1,000 shares. The thought process usually leads to the idea that this $5 stock could become a $6 stock and I will have made $1,000.
That sounds simple enough, and technically it is true. The idea that I want to stress here is that sometimes a low priced stock could be even more important to your portfolio and an investment of only $5000 or $6000 might not be enough. Conversely, if you have a smaller overall investable amount, it could be too big.
Know your risk profile and allocate funds accordingly.
Easier To Double?
If I had a nickel for every time I heard this idea, I would already be enjoying my retirement in the south of France. So many times I have heard it is easier for a $5 stock to become a $10 stock than a $50 stock moving to $100. Let’s tackle this one from a mathematical perspective. A stock that moves from $5 to $10 has increased by 100%. If you move the decimal spot over one, then you get a $50 stock moving to $100. You have that same 100% move. Continued . . .
------------------------------------------------------------------------------------------------------
Low-Priced Stocks with Sky-High Potential
Zacks is now revealing its top stock recommendations priced under $10 per share. Each is a high-quality company with prospects for gains of 2X and even more. Recently, our recommendations have generated returns as high as +129.6%, +129.9%, even +193.8%.1
Strong earnings growth plus other Zacks' indicators mark our rare Under $10s for sustained growth. Look into them today, and then ride the potential profits high and long.
See Top Stocks Under $10 Now >>
------------------------------------------------------------------------------------------------------
Now you might think that more people would be able to, or willing to invest in a low priced stock, but that isn't necessarily true. In fact, the big institutions are known for NOT going after the little stocks.
At the end of the day, a stock's movement and potential to double is not a function of the price of the stock. Instead it is the underlying demand for the shares and the prospect for growth.
When you have the right recipe in a low priced stock then you really have something. Often times, investors are substantially rewarded, but they must show patience.
Institutions Cannot Hold Them
Over the years I have heard this one as though it was a whisper from on high. The big boys and girls that really run things consciously avoid these smaller stocks. At least that is what they want you to believe.
Having worked at large financial institutions in the past, I know there was a “$5 Rule” that stated a portfolio manager could not hold a stock priced less than $5. Thing is, that same institution held $3 stocks in the trust accounts and in the broader portfolio.
Talking out of both sides of your mouth is never a good thing. I can tell you the portfolio managers were discouraged from holding very low priced stocks, but it wasn't strictly forbidden. Just look at the history of stocks like SIRI and AMD - they have spent time below $5 and still showed up on 13F statements of ownership.
The biggest investment houses can hold single-digit stocks. The truth is, they really don’t want to hold that many of them.
The Important Truth
Investing in low priced stocks does have its pitfalls, but the rewards can be huge for getting in at such low levels. Often times when finding a good stock at a low price, even a small amount invested can become big dollars.
Buying in at say $8 makes it really easy to hold the stock at $16 even when there is a rough patch. It is important to recognize that just because a low priced stock is moving higher, there are still bumps in the road.
Investors should look for the stocks that have found a bottom and have seen earnings estimates move higher. Leveraging the Zacks Rank will give any investor a chance for success with low priced stocks.
Finding the Best Low-Priced Stocks
One of the easiest ways for you to find single-digit stocks with positive price trends and improving earnings is to follow my Stocks Under $10 portfolio.
Stocks Under $10 focuses on companies on the verge of big upward moves. We get in when the Zacks Ranks and other proven indicators point to success ahead, then ride them long and high. For example, we've closed out positions with gains as high as +129.6%, +129.9%, even +193.8% this year alone. 1
Now is a great time to join the investors following my live buys and sells. With the stock market having its best quarterly performance since 2013 – with small caps leading the way – we’re looking for a lot more double- and triple-digit gains in the months ahead.
And today, in addition to checking out Stocks Under $10, you are welcome to download our just-released Special Report, 7 Best Stocks for the Next 30 Days.
The 7 companies named in the report have positive earnings estimate revisions and solid forecasts. As a result, we believe they have the greatest chances of outperforming the market in the upcoming month.
But a word of caution: Your chance to download this report for free ends Sunday, October 7.
See our Stocks Under $10 now >>
Best,
Brian
Brian Bolan is our aggressive growth expert and the editor of the Zacks Stocks Under $10 portfolio.
¹ The results for the trades listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors.