Former oil industry executive CEO Tufan Erginbilgic took over in January 2023, aiming to quadruple Rolls-Royce’s profits in the next five years and complete other key initiatives. Meanwhile, penny stocks often trade infrequently and hold wide bid/ask spreads. These stocks also carry many other traits that, in many cases, cause excessive volatility. With that said, some penny stocks perform incredibly well, which helps them remain attractive. There could certainly be more selling and volatility throughout earnings season, especially since big tech stocks have set the bar very high for themselves.
What Are the Rewards of Buying Stocks Under $5?
One stereotype about penny stocks is that every company is a startup that is in a risky market sector. However, there are many established businesses trading on standard exchanges that trade for less than $5 per share. When these companies appear on major exchanges, they are viewed as carrying less risk because they have to meet regulatory requirements that keep their accounting transparent. 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”.
Undervalued Wide-Moat Stocks
Many stocks under $5 are companies that may be startups or riskier business ventures. One of the biggest examples is biotech, an industry with larger startup costs and huge risks for investors. A startup company may discover the cure for cancer, in which case, you can cash out as a billionaire. Or, they may not, and they’ll take all your money with them when they fold.
Financial Calendars
Before you decide to purchase any of these stocks, do plenty of research to ensure they are aligned with your financial goals and risk tolerance. Since then, it has pulled back, offering investors a more attractive P/E. To some investors, the P/E may still appear high at 42.7, but the company is growing rapidly so the forward P/E is much more reasonable. However, when done right, you can land a good stock for a bargain price.
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The company has seen its P/E fluctuate between 3.8 and 24 over the past five years. That suggests that for each $1 of Bancorp earnings, an investor has to pay $8.90, which is slightly less the average cost over the past five years. Likewise, Bancorp’s price per share is below its high point over the past 52 weeks.
How to Trade Stocks Under $5?
The only luxury goods company on our list of the best cheap stocks to buy below $10, Swatch Group stock trades 53% below our $21.30 fair value estimate. The company’s pricing power helps underpin its narrow economic moat rating, explains Morningstar senior analyst Jelena Sokolova. First-half 2024 results have been weak because of sales declines in China, but we think this undervalued stock should appeal to patient, long-term investors, she adds. Rounding out our list of the best cheap stocks to buy under $10, Sirius XM trades 32% below our fair value estimate of $5 per share. The company earns a narrow economic moat rating largely because of the cost advantage of its satellite radio service. The only wide-moat stock on our list of the best cheap stocks to buy below $10, Ambev stock trades 41% below our $3.60 fair value estimate.
Thankfully, the tailwinds that sent the market soaring in the first half remain in place. If you’re interested in exploring more stocks under $5 get an edge over other traders with Benzinga Pro while we’re currently offering a 14-day trial. And unlike other high-flying momentum names in hotter segments like artificial intelligence (AI) or biotech, Alight is comfortably profitable and trades for a reasonable valuation of about 10 times forward earnings. Please note that the stocks above were selected by an experienced financial analyst, but they may not be right for your portfolio.
You can learn more about GOBankingRates’ processes and standards in our editorial policy. And others are destined to remain undervalued for years, simply due to investor sentiment. Even stocks that appear undervalued with high growth prospects might not go up in value for any number of reasons. Read more about how each of these factors works when it comes to low-priced stocks. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
Yet another disadvantage to stocks under $5 is their low trading volume. They can be harder to unload if you need to, because you may not find a willing buyer. Moreover, many penny stocks of younger upstart companies will most likely not pay out dividends. You are only purchasing the stock to leverage a change in its price—or hoping that in the future they will play into your dividend investing strategy. Occasionally penny stocks will be part of a “pump and dump” scam, where investors build excitement over a particular stock to drive up the price. They may “leak” information that a startup energy company struck gold or put forth an imaginative but enticing earnings estimate for the next quarter.
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. I have written extensively about capital markets, Wall Street and investing since 2008. Along the way, I’ve learned how to separate legitimate investing opportunities such as those found in the best stocks to buy from those more likely to result in volatility or dubious performance. So when I compiled this list of top stocks that are priced at or under $10, I focused solely on companies that trade on major exchanges vs over-the-counter “penny stocks.”
The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru. Cheap high-quality names from the Morningstar Wide Moat Focus Index are attractive stocks to buy for long-term investors. Bayer’s healthcare segment also includes a consumer healthcare business with leading brands Aspirin and Aleve. Brand recognition is key in this unit, as evidenced by the company’s iconic Aspirin, which continues to post strong sales even after decades of generic competition.
As a result, they’re considered too risky to attract the interest of most managed mutual funds and Wall Street money managers. You may find even find crypto stocks, marijuana stocks, and bitcoin stocks on this list. Others have been beaten up by Mr. Market after a long period of slowing profits but are now actively trying to turn around their business and bounce back. The stock trading off its 52-week price per share high may present a value as analysts are predicting 12.6% earnings per share, or EPS, growth in 2024 and 13.7% EPS growth in 2025. The company has an “A” financial health rating from Morningstar, the highest rating possible. Morningstar thinks that companies with economic moats possess significant advantages that allow them to successfully fend off competitors for a decade or more.
- That said, some investors simply don’t have the cash to buy some of the priciest stocks on Wall Street, such as online travel company Booking Holdings (BKNG) that trades for roughly $3,800 a share at present.
- When you find stocks that are listed under $5, remember that they could linger or rise.
- 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.
- Here’s the new list of Morningstar’s top underpriced analyst picks to buy for the third quarter of 2024.
Stocks under $5, in particular, present an incredible opportunity to make huge gains. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Over the previous year, the semiconductor stock is up 55%, likely in anticipation of strong sales for its AI-capable chipset. And given the attention surrounding that topic, investors will probably see its 25 P/E as a bargain that is too good to ignore.
ALTM made its market debut in January 2024 following the merger of Allkem and Livent, two chemical stocks that were once high-fliers. But the company is still profitable and is certainly worth a look now that it is more fairly valued at its current price. Arcadium Lithium (ALTM, $3.45) specializes in lithium, with various properties around the world that produce and process related compounds.
Kinsale Capital is an insurance holding company, focusing on underwriting hard-to-place risks that other insurers may sidestep. We’d like to share more about how we work and what drives our day-to-day business. Lithium carbonate is produced by pumping brine out of the ground (primarily in South America) or via pegmatite mining that produces spodumene, which is later converted to lithium carbonate. Lithium hydroxide can be produced either from the conversion of carbonate or directly from spodumene.
Sales have been strong, increasing an annual average of 31.9% over the past five years. Net cash flows, cash from operations and free cash flow are just a few of the cash flow metrics used to analyze a company’s value. A company with a low price relative to cash-flow measures is less expensive than one with a higher ratio. In our view, the most likely and significant boost to profitability would be a reversion to the historical mean of commodity costs.
They also note whether a company performed as expected for a given period. Digging into past earnings reports can help you anticipate future performance and decide whether cheap dividend stocks are a good buy. Low-priced stocks, meanwhile, are typically stocks whose share prices fall below a particular dollar amount. In this article, we’re focusing on low-priced stocks with share prices below $10, for instance.
Just nine years later, TowerBrook Capital Partners acquired the company and paid $32 for every share…a whopping 4676% profit. Whichever stock trading strategy you prefer, penny stocks can be some of the best growth stocks for their undervalued cost—if you trade the right way. In this article, we’ll explain why stocks under $5 are considered penny stocks and whether investors should invest in penny stocks at all.