Traders focus on cheap stocks because of their upside potential. Stocks cannot be priced below $0. This gives them defined risk limits with uncapped upside. However, trading these name is not as simple. These stocks are cheap for a reason. Identifying the best cheap stocks dramatically increases the odds of success.
Important characteristics of the best cheap stocks are liquidity, short interest, and analyst coverage. Some investors build positions over time in these names. Conversely, quicker traders buy into a short squeeze intending to sell after the shorts have capitulated. Whatever the strategy, it is vital to understand potential upside in these stocks.
Best Cheap Stocks Today
Cheap stocks move much slower and more controlled than expensive names. This makes it easy to lose interest or second guess a trading strategy. Patience is important when using this strategy. Consequently, traders should know helpful metrics that back a trade. The following discusses positive fundamental metrics in specific cheap stocks.
The Finish Line, Inc. (NASDAQ : FINL) operates as a retailer of athletic shoes, apparel, and accessories for men, women, and kids in the United States. This retailer trades just under $10. It is a liquid name, trading over 1.5 million shares per day. The stock shows institutional ownership over 90%. Additionally, 25% of the float is short. These metrics show that on any positive news, institutions may rush to buy, while shorts rush to cover.
Consequently, the stock typically has large up moves than down moves. The stock has many takeover rumors attached to it. This causes violent moves up. However, the stock usually retraces in time. Savvy traders take advantage of these scenarios and profit. A legitimate sale is possible, as the company grew sales 6% over the past 5 years.
Sprint Corporation (NYSE : S) provides various wireless and wireline communications products and services to consumers and businesses. This forgotten cellular phone company is doing quietly well. Recent business initiatives showed the company results, as they grew earnings-per-share (EPS) almost 40% last year. The firm drew recent investment interest from international financiers. They are also covered in merger talks making this best cheap stock a constant mover.
Additionally, the company shows price-to-sales (P/S) ration of under 1. Stocks with P/S under 1 typically outperform the market over time. This metric tells investors they are paying less than $1 for every dollar of sales generated by the firm.
Best Cheap Biotech Stocks Today
Retail biotech investors diversify their holdings. This strategy makes sense as many of these names are low price (defined risk), and one or more are bound to explode higher eventually. A portfolio of 10 best cheap stocks may only need 1 winner to achieve superior gains.
Achillion Pharmaceuticals, Inc (NASDAQ : ACHN) develops small molecule drug therapies for infectious diseases and immune system disorders in the United States and internationally. This stock currently trades around $3. It traded as high as $17 in the past, showing the upside potential in the name. The stock trades over 2 million shares daily. This makes the stock less risky and more easily managed.
Most noteworthy, this best cheap stock grew sales over 120% the past 5 quarters. It has enough cash on hand, showing a current ratio over 20. Thus, immediate bankruptcy is unlikely. The company partnered with large multinationals such as Johnson & Johnson (NYSE : JNJ) in the past. This speaks to the company’s vision and ability to execute at a higher level.
Best Blockchain Cheap Stocks
The recent popularity in cryptocurrency caused many cheap stocks to skyrocket. Working in this space seemed like an easy way to appreciate a company’s stock price. As a result, many companies followed the trend. This created many pretenders. However, a few companies show promise in their pursuit of the new technology.
Marathon Patent Group, Inc. (NASDAQ : MARA) acquires and monetizes patents primarily in the United States. Recently, the company acquired a digital technology and asset firm. Investors bid the price higher, as the firm suddenly had exposure to bitcoin and blockchain technology. It surged higher, realizing gains over 500% in a few days. This best cheap stock traded as high as $30 in the past, showing tremendous upside.
Furthermore, this initiative already translated to the top line. The firm sales quarter-over-quarter sales growth over 200%. It trades over 1 million shares daily, allowing large trades at a time.
Eastman Kodak Company (NYSE : KODK) provides hardware, software, consumables, and services to customers in various markets worldwide. This company announced blockchain initiatives relating to its cameras. The stock popped 300% in a few days. The stock shows over 25% short interest. Consequently, these news events cause dramatic moves to the upside. The company has come a long way since their original hardware.
Also, this best cheap stock now trades around $7 and shows earnings growth over 150%. This solid fundamental metric is what gets investors excited. As these initiatives unfold, investors come to the table eventually causing shorts to cover. There is a chance this already begun as institutional ownership now stands close to 70%.
Trading Best Cheap Stock
As mentioned previously, many investors allocate capital among these stocks. Unforeseen events are common. However, risk becomes smaller as the number of holdings grows. Investors want to give themselves the best chance at profit. This is why it is necessary to buy the best cheap stock with solid fundamentals. A company that has no cash and draws no trading interest is much more risky than a liquid name with a sufficient assets.
Analysts offer opinions in some of these names, reviewing the stocks quarterly. It always helps having a professional give advice in his chosen field. Furthermore, this is especially important in new fields such as experimental drugs or blockchain technology. Frontier industries are misunderstood by many, and the advantage belongs to those who understand the space.
In conclusion, cheap stocks are an excellent way to define risk, but also an easy way to miss investment opportunities. A trader must know if a stock has real potential, or will lie trendless for a period of time. One obtains this information through researching fundamentals of the company or listening to analysts. Additionally, just reading the front page of market reviews will point investors in the right direction. Fresh news is always welcomed in these best cheap stocks, and typically causes large and profitable moves.