- Stock market winners often share common traits such as a new product or service driving big earnings and sales growth, and they tend to sell at higher share prices.
- Despite the growing influence of retail investors, institutional investors still dominate the market and generally focus on higher-priced stocks.
- High-priced stocks are often more liquid and higher-quality than lower-priced stocks, which are usually cheap due to declining earnings, sales, and shrinking market share.
Explore the benefits of investing in high-priced stocks and the role of institutional investors in driving their popularity.
Preference for High-Priced Stocks
Many investors may prefer the idea of owning 10,000 shares of a $1 stock rather than 10 shares of a $1,000 stock. However, it’s often more beneficial to own higher-priced top stocks in the stock market, particularly those with top Composite Ratings from IBD. Institutional investors, including mutual funds, banks, and insurance companies, typically focus on these higher-priced stocks due to their liquidity and quality.
Low-Priced Stocks: A Risky Investment?
Low-priced stocks are often cheap for a reason, usually due to declining earnings and sales and shrinking market share. These factors make them a risky investment, particularly for institutional investors who need to ensure the stability and growth of their portfolios.
IBD 50 Stock Market Leaders
There’s no shortage of high-priced stocks among the IBD 50 stock market leaders. As of Friday, 25 of the 50 stocks in the index were priced above 100. Other IBD screens, like Long-Term Leaders and the Big Cap 20, also feature many high-priced stocks. The rise in high-priced stocks can be attributed to the stock market’s strong performance in 2020 and early 2021, as well as the decreasing frequency of stock splits.
The Decline of Stock Splits
Companies used to split their stock regularly, believing that a lower share price would attract more investors. However, stock splits have become less common, partly due to the emergence of micro-investing apps like Robinhood, which allow fractional trading. This shift has contributed to the prevalence of high-priced stocks in the market.
Conclusion
In conclusion, while the idea of owning a large number of shares may be appealing, it’s often more beneficial to invest in high-priced stocks. These stocks are typically more liquid and higher-quality, making them a preferred choice for institutional investors. With the decline of stock splits and the rise of micro-investing apps, high-priced stocks are likely to continue dominating the market.
