Searching for quality stocks under $5 is a lot like bargain hunting. Low prices allow you to buy these stocks in large quantities without stretching your wallet. The payoffs can be huge, but so can the volatility when stock prices are relatively low. This is why the best stocks to buy now cheap must be monitored carefully. This is not a “set it and forget it” scheme. You want these stocks on your watchlist so that when you find a buy rating or a good time to make your move, you can invest appropriately.
Best Stocks Under $5 Right Now
Session: Nov 29, 2023 4:00PM EST – Nov 30, 2023 3:59PM EST
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Overview: Stocks Under $5
Stocks that trade under $5 are considered cheap stocks. But unlike stocks under $10 or stocks under $20, stocks under $5 are in a separate category. The Securities and Exchange Commission (SEC) considers stocks that trade under $5 to be penny stocks. Yes, these are often the best cheap stock to buy even if they’re called “penny stocks”. When you do your research, a term like penny stock shouldn’t scare you. Market insights often indicate that these stocks can gain and are even good for swing trading.
True, an investment advisor might not zero in on these stocks first, but you might consider adding these assets to your portfolio so that you have some room for growth. However, room for growth requires patience. Impatient investors may want to look into swing trading or day trading options, which allows them to maximize their profits, enhance their portfolios and plan for the future.
For example, Costco (NASDAQ: COST) is a discount retailer that hosts customers in large warehouses. Even so, it’s stock regularly trades for several hundred dollars per share and the company is one of the largest retailers in the world. While this is an extreme example, it shows that terminology only paints a small part of the picture. You must monitor these assers, choose a trading strategy that works for today—not “whenever”. Determine when you will exit the position. Decide if you can invest for value in these stocks, how much you’re willing to spend and if that budget will change based on what you learn about the asset.
How Much Money Can You Make From Stocks Under $5?
Let’s say you invest $300 for 100 shares of a stock trading at $3. If that stock price goes up by only $3, you will have made 100% in profit, or $300. Huge payoffs for little upfront capital is what makes cheap stocks an attractive investment. At the same time, you don’t want to assume that these investments will pan out every time. Spend money you are prepared to lose because it’s difficult to know where a stock will move, especially if you’re investing with savings or retirement funds.
However, you must understand that cheap stocks are very close to 0 or being delisted. This does not mean that all cheap stocks will lose value, but a stock that isn’t all that expensive could easily plummet overnight, leaving with tough decisions to make. This is why investment management takes quite a lot of patience and information—in fact, the help of a professional or informational platform like Benzinga can go a long way.
A strategy for spotting potential in stocks under $5 is to look out for undervalued companies. Companies that have suffered a crisis might see stock prices dip into the low single digits. Executive mismanagement, high debt, pricing pressures and increased competition are some of the factors that spook stockholders and send a company’s stock sinking seemingly without warning. But, those that are monitoring the markets carefully will see these issues come about through small items in the news cycle until they become too big too ignore.
But the company might be able to turn things around. Management can change, debt can be restructured or the market could shift in the company’s favor. Everyone loves a comeback — especially if you’ve scooped up that stock for a bargain. Bargains can turn into profits, but it depends on how long they last. You must carefully monitor your portfolio to ensure certain bargains you thought would soar aren’t tanking.
Another way to spot a potential winner is by looking at companies that have major growth potential. A stock could trade under $5 because the company is small. But that small company could also be rapidly growing. Their market capitalization may be low today, but that can change quickly, especially given recent market volatility.
Features to Look for in Stocks Under $5
Here are some things you may want to consider as you gather stocks under $5 into your basket:
- Earnings per share: A great way to get a sense of a company’s profitability is by looking at its earnings per share (EPS). You can find a company’s EPS by subtracting the preferred dividends from net income and then dividing the difference by outstanding stockholder shares. If you spot a stock with EPS that has been growing, it can signal growth potential.
- Trading volume: A stock’s trading volume will tell you how many shares are traded during the day. If the trading volume isn’t high enough, you may not be able to sell your position. Stocks that have a trading volume of at least 1 million tend to be safer. Keeping an eye on the trading volume will also help you spot stocks that may be on the uptick.
- Management: A management team that is set on turning the company around can be the reason a stock under $5 enjoys a boost. A company’s focus on capitalizing on a growing market is another sign of potential. Look into the company’s strategic business plan to understand the mindset of management.
- Growth potential: The question is, will you hold this stock or unload it when you believe it has reached its potential. Some people even find that stocks under $5 fit into retirement accounts because of their growth potential, and they could continue to grow because of their low pricing simply because companies that are trying to grow rapidly are incentivized to help that stock value rise over time.
Weigh Risk for Stocks Under $5
When you find a few cheap stocks to buy right now, they carry both growth potential and their fair share of risks. Even the best stocks to buy under $5 are notorious for major upswings and selloffs because they have not yet fully matured. Your risk for loss is also higher if the company hits a difficult roadblock.
It’s not unheard of for companies with shares trading under $5 to go under and leave investors with nothing. At the same time, a price change could occur at any time, turning a stock that routinely sits under $5 into a growth asset with an emerging market cap.
Avoid putting all your money into these stocks and diversify with safer assets like blue-chip stocks or bonds. The best cheap stocks to buy can be a valuable addition to your investment portfolio with your due diligence and diversification. Stocks to buy now cheap can become a lovely addition to your portfolio, so long as you return to Benzinga often to research each new security.
When you find stocks that are listed under $5, remember that they could linger or rise. Some people want to hold for the long-term, but others want to swing trade and move on. Decide what sort of investor you want to be before filling your portfolio with affordable assets.