The cheaper the stock price value, the more shares one can get. No wonder stocks that are under five bucks are enticing to own and get. And who wouldn’t? Small investors and even expert ones gravitate towards this kind of stocks. Here’s a scenario why cheap stocks are preferred. In order to own 100 shares of the Apple Company, you need to spend as much as $17K. For $17K of a $5 stock company, you would own 3,400 shares. There’s really a huge difference.
Even if there are a lot of companies that are under $5 dollars, not all companies are the same. There are cheap or undervalued companies and there are also bad ones. For example the company Sirius XM Holdings Inc closed at $5.44 per share on November 24, 2017. Sirius has a market cap of $25B. The same day, Chipotle Mexican Grill Inc closed at $279.31. Yet, its market cap is only $7.94B. When assessing stocks, do not only be concerned with the price per share. You also need to look at its market cap. Companies with market caps that are below $500M are most volatile. This means, there’s greater opportunity when trading such stocks.
Do you really need the $5 stocks?
You don’t need to manually search for stocks under 5 bucks. Considering the number of publicly listed companies, it can be tedious and it can take time. Because of this need, there are brokerage platforms that have scanning tools available. Yet, you should be able to create filters to aid in narrowing down the stocks you would want to search.
In spite of its low price, don’t be complacent as you can be able to have a lot of shares back. You must also incorporate technical and fundamental analysis as well. You must make sure to also do your homework when deciding what companies to buy. While there are analysts that can help suggest which ones to buy, always take their advice with a grain of salt. Do not just buy a stock because others are buying it too. You might already be late once you enter and the rest might already be selling.
Get your data first
Aside from that, fundamental analysis is also suggested. Look for press releases from five bucks companies. Press releases are good news of the companies to indicate major milestones and directions. Have a watch list of companies you would like to dip your hands in. If they have future goals that can surely make a difference, it would be best to buy a few lots from them.
In the end, everything boils down to your risk appetite. If you are a conservative trader, consider only companies that are not only cheap but also viable ones. Make sure you allocate funds that you are willing to lose. The stock market can be both a friend and an ally. You can earn a lot or lose a lot.
So make sure you only put your extra money when trading. Always make smart decisions based on your study. And don’t be afraid to limit some of your trades and pull back when necessary.