Whether the market is in a bull, bear, or trend-less phase, the quest for inexpensive stocks with growth potential never fades. The allure of a stock tripling from $1 to $3 or quintupling from 50 cents to $2.50 is undeniably appealing. However, navigating the challenges of identifying promising cheap stocks requires careful consideration.
The First Challenge: One hurdle is the multitude of low-priced equities on both the Nasdaq and NYSE. The challenge lies in consistently picking winners from this extensive pool. Additionally, many institutional money managers shy away from cheap stocks due to their low trading volumes, making it difficult to accumulate significant stakes without impacting the stock price. It’s noteworthy that historical data suggests many great stocks don’t start as penny shares; they often trade at higher values before experiencing significant rallies.
Institutional Ownership and Pitfalls: Solid institutional buying is a key component of successful investing in growth stocks, according to IBD’s seven-factor paradigm known as CAN SLIM. However, many low-priced stocks can remain stagnant for extended periods. While the allure of potential gains is enticing, investors must be cautious, as tying up funds in stocks that fail to appreciate significantly may result in missed opportunities with established market leaders.
Case Study – Zoom Video: Examining Zoom Video’s trajectory in 2020, it illustrates the contrast between stocks with “expensive” prices and their subsequent remarkable rallies. Despite experiencing a significant correction, Zoom’s resilience and attempt to establish a new base indicate ongoing efforts to recover.
5 Cheap Stocks Worth Watching:
- Crexendo (CXDO):
- Recent performance: Achieved 52-week highs with notable volume surges.
- Business profile: Micro-cap selling ecommerce technology to small and medium businesses.
- Financials: Revenue exceeded $50 million over the past four quarters, with robust earnings growth.
- Current Status: Extended from a previous buy point, closely monitored for potential entry points.
- Cipher Mining (CIFR):
- Recent performance: Overcame volatility, testing support near the 200-day moving average.
- Business profile: Engaged in Bitcoin mining data centers in the U.S.
- Financials: Reported Q3 earnings of 2 cents per share and sales of $30.3 million.
- Current Status: Formed a deep cup without a handle, offering a potential 5.30 buy point.
- Kinross Gold (KGC):
- Recent performance: Aiming for a sixth weekly gain in seven weeks.
- Market context: Gold futures recently traded at $2,057 per ounce.
- Technicals: Recovered from a sharp drop, surpassing breakout points and extending past buy zones.
- Fundamental Highlights: Strong earnings and sales growth, positive return on equity.
- Heritage Insurance (HRTG):
- Recent performance: Resilient amid market declines, yet recently corrected through the 10-week moving average.
- Business profile: Provides residential insurance in Florida.
- Financials: Showed revenue growth and improved profitability in recent quarters.
- Current Status: Sharply extended, potential rebound and base formation monitored.
- Cellebrite DI (CLBT):
- Recent performance: Sideways movement after clearing an 11-week base.
- Business profile: Digital intelligence software aiding investigations.
- Financials: Q3 results indicated strong growth with a potential breakout from an early entry.
- Current Status: In the 5% buy zone, watchful of potential base-on-base pattern.
Conclusion: While these stocks show promise, investors must remain vigilant. As markets shift, staying informed about potential entry points, technical indicators, and the broader economic landscape is crucial. As a rule of thumb, the IBD mantra of cutting losses short to protect capital remains paramount, even when dealing with affordable stocks.
