- Investors are constantly on the lookout for cheap stocks to buy, regardless of the market cycle.
- However, the hunt for cheap stocks presents unique challenges and pitfalls.
- It’s essential to understand these challenges and apply sound investment principles to navigate the stock market effectively.
This article explores the challenges of hunting for cheap stocks and provides insights into some promising cheap stocks to watch and buy.
The Challenges of Hunting for Cheap Stocks
Many equities trade at a “low” price on both the Nasdaq and NYSE, making it difficult to consistently pick winners. Moreover, most institutional money managers avoid cheap stocks due to the difficulties in accumulating shares without impacting the stock price. Additionally, research indicates that many great stocks each year do not start out as penny stocks. They often already trade at 20 or 40 a share before they break out of a bullish pattern and go on mind-blowing rallies.
Understanding the Pitfalls
Many low-priced shares stay low for a long time. If your money is tied up in a dollar stock that fails to generate meaningful capital appreciation, you might not only be nursing a dud stock. You also face the losing opportunity of investing in a true stock market leader. Therefore, it’s crucial to have sound sell rules to lock in paper profits and keep losses small.
Cheap Stocks to Watch and Buy
Despite the challenges, there are cheap stocks that carry many of the key fundamental, technical and fund ownership quality traits routinely seen among the greatest stock market winners. These include Aris Mining (ARMN), Rave Restaurant Group (RAVE), Arcutis Biotherapeutics (ARQT), Cellebrite DI (CLBT), and Mitsubishi UFJ Financial (MUFG). However, it’s essential to monitor the gap between a cheap stock’s best bid and best ask prices to avoid price slippage and keep losses under control.
Conclusion
Investing in cheap stocks can be a rewarding but challenging endeavor. It requires a deep understanding of the market, careful analysis, and sound investment principles. By keeping an eye on promising cheap stocks and applying the right strategies, investors can navigate the market effectively and potentially reap significant gains.
