A cheap stock does not mean, a bargain value stock. For a falling stock Zero may be a target. Beware, while you invest in them.
The reason for the falling stock may be for fundamental reasons or it may be technical in nature.
Cheap Stocks Wall Street Loves: Qihoo 360 Technology
Qihoo 360's game platform. Source: Qihoo 360.
Buy Cheap Stocks
As stocks have taken a beating of late it could be time to look for bargains and buy cheap stocks.
cheap stock A stock that is trading below its expected price given the company's fundamentals, as in With Monty out hammering ZVZZT, I might end up being able to buy some cheap stock by the end of the day.
Cheap stock: many investors write put options as a way of buying stock cheaply.
Cheap stocks get cheaper. Often times traders like the idea of trading cheap stocks in hopes of greater returns. What about the inherit risk of trading cheaper stocks, the volatile swings, and not to mention the commissions?
Do not fade gaps ...
CHEAP STOCK. Common stock, stock options, warrants, or other potentially dilutive instruments issued to employees, consultants, directors, promoters, or others providing services to an issuer at a price lower than the public offering price.
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While cheap stocks listed on exchanges like NYSE and NASDAQ aren't typically considered "penny stocks" per se, they can afford a lot of the benefits of penny stocks without quite so much risk.
The five cheap stocks listed in the 'cheap' article were: ELN, BAC, SD, NAK and RIMM. At the time, I only gave two of them watch list status. The others? Not so much.
Greenblatt suggests purchasing 30 "good companies": cheap stocks with a high earnings yield and a high return on capital.
But even when some of the ratios appear favorable, a cheap stock may not be quite as cheap as it seems and in reality may deserve to be cheap, or even cheaper than it already is.
50 for cheap stocks to several dollars for more expensive stocks. The box size may even change in the same graph if prices span a large interval. However, the trader can choose the box size that best suits his needs. Any price changes that are less than the box size are not recorded.
So-called bargain hunters for beaten-down or cheap stocks only have slightly better odds for success than bottom-fishers in futures markets.
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If you are looking for cheap stocks that are usually sold at $1 or less then penny stocks are the stocks you are looking for. Such stocks are generally issued by very speculative companies. As a result they represent the stocks that are most subject to different swindles and schemes.
2) The slight uptrend also indicates that the lay public is being 'suckered into' the stock as they buy what they believe to be a cheap stock.
When the buying from the lay public dries up and the weak shorts finish covering, support disappears, and the stock continues it downward movement.
A fire sale normally occurs after a bears market when there are many cheap stocks in the financial market. In fact it can appear that all stocks are cheap and undervalued during this time.
Another important tip is to choose your penny stock broker carefully. Many stock brokers don't like penny stock traders and place extra charges for buying cheap stocks. It's important to avoid these as they will eat into your profits or increase your losses.
After you have narrowed the field using the above techniques, there will be no substitute for intense homework about company prospects to find which of those cheap stocks that truly give you superior returns, what I call my "Home Run Stocks."
About The Author ...
From the Desk of Irwin Michael
The Dirt-Cheap Stock Detective® ...
Perhaps the company owns something, like a patent or an oil field, whose true worth is unrecognized by the market. Of course, not every cheap stock is valuable, just as not every item in a flea market is a bargain. Sometimes there is good reason the price is so low.
large, growth stocks (blue chips or established companies with a large market capitalization) with small, value stocks (companies with a small market capitalization and low or depressed stock prices), arguing investors will enjoy better-than-expected returns from those small, cheap stocks.
If we're talking about the share price, I would say no. Apple's shares trade at a steep discount to the broader market, and the company is aggressively raising its dividend. Though Apple is no longer the growth story it once was, it's a profitable company with a cheap stock.
For instance, some might consider a particular company's stock price cheap if the company's price-earnings ratio is much lower than the average for its industry. Another method of valuation that might indicate a cheap stock would be if a company's shares are trading for a price below its asset ...
Value investing is all about searching for stocks that the market is undervaluing. The idea is to get in while the price is lower so that you're on board when the market corrects and the price goes up. But a bargain stock doesn't necessarily mean a cheap stock.
The most obvious books to start with are The Intelligent Investor and Security Analysis by Graham and Buffettology by Mary Buffett. These books lay out some of the important thinking processes and investment criteria that they used to find cheap stocks.
See also: Stock, Stocks, Market, Vesting, Investing