Choosing low-priced stocks requires a little more than simply looking for options that are currently trading at a low price. Many people are not aware that while the investment is low, the degree of risk may be higher than they think. For this reason, there are several steps to choosing the right low-priced stocks if you want to benefit your portfolio rather than lose money.
One option with low-priced stocks are the penny stocks. These types of stock options tend to trade at extremely low rates, but they also have a high degree of volatility or risk. Traders who are successful with this type of option tend to put a lot of time into the effort, buying and selling quickly to take advantage of the constant fluctuations that occur with stocks of this type. Unless you are willing to invest a lot of time for a little return, this is probably not the way to go.
In general, investors tend to consider low-priced stocks to be those that trade under $10 US dollars (USD). Many stocks that are under this amount are likely to be on their way down with no hopes of ever recovering. This means that if you want to pick up bargains, it is important to do some research on what has happened with the stock in the past, and the potential the option has to move upward rather than hold or lose value. Make it a point to look at the price movements on the stock for at least the last two years, and relate those movements to what else was happening in the market at the time. Doing so makes it easier to determine which types of events exert some influence, good or bad, on the value of the shares.
One you have a firm grip on how the low-priced stocks have performed in the past, and the reasons behind that performance, move on to evaluating the prospects for future growth. Look for market trends indicating that that some of the factors that led to past upswings in value are likely to occur again within a reasonable period of time. Consider how the issuer stacks up in the marketplace to both established and new competition, and allow for the impact that standing is likely to have in the future. Also, take into account the potential impact of other events that may not have taken place in the recent past, but could occur and cause the prices of the low-priced stocks to move one way or the other. This will help you further refine the list of potential options to purchase, as well as provide valuable clues on what options to avoid at all costs.
Make it a point to learn all you can about what investment experts think about the low-priced stocks that seem to be a bargain. Talk with brokers and analysts and gauge the responses in terms of their enthusiasm or ambivalence to each of the options. Don’t hesitate to ask for specific reasons why these experts hold various opinions on the options. There is a good chance they know something you’ve overlooked that will either increase your assurance that a given deal is a good one, or provide a reason to go back and take a second look at low-priced stocks that may not be the bargains you thought they were. While labor-intensive, taking the time to research before buying increases your chances of choosing the right low-priced stocks and earning a decent return over both the short- and long-term.
