Investors trade lower priced stocks based on a few reasons. Typically, these are lower risk names. For example, a $5 stock moves less in dollar terms than a $200 stock. Traders and investors who hold a portfolio of names are susceptible to gap risk. This is when a stock opens at a different price than it previous closed. This article details the best stocks under $10.
It is important for a strategy to match the stock’s personality. Otherwise, trading becomes frustrating and unprofitable. We will discuss sound strategies for these stocks. Additionally, what makes them fit certain strategies. Finally, we will note how to find other stocks with similar personalities.
Best Stocks Under $10
Low priced names have inherent risk management qualities. However, low priced stocks are cheap for a reason, so prudence is in order when selecting which to buy and sell. Additionally, different sectors come with different with different characteristics. These are discussed below.
Express, Inc. (NYSE : EXPR) operates as a specialty apparel and accessories retailer. This best stock under $10 traded as high as $26 in the past. It is heavily shorted, showing interest over 18%. Any positive news catalysts sends this stock soaring. It trades a liquid 3 million shares per day. This is necessary for investors moving large positions. Large size is necessary to make significant gains in the best stocks under $10.
Furthermore, this stock shows an incredible price-to-sales (P/S) ratio of under .5. Value investors use this metric in valuing companies. It reveals that investors pay less than $.50 for every $1 in company sales. Additionally, the company shows healthy gross margins over 25%. This is important for value company like EXPR.
Pandora Media, Inc. (NYSE : P) provides Internet music platform services in North America. This product became extremely successful, filling cars and parties across the continent. The advent of other streaming services cut into their market share, spelling tough times for the stock. However, the company appears to be improving. It shows a very aggressive sales growth of over 35% the past 5 years.
Additionally, if these numbers continue, the stock will explode. it shows short interest over 20%. It is a crowded traded that sends shorts running for the exit on positive news, such as increasing sales. The company has low bankruptcy risk, shown in its current ratio over 4. It is not a cash burning enterprise. This is a sign of strength in the best stocks under $10.
Best Biotech Stocks Under $10
Biotech is a read hot sector, with companies always bringing new drugs to market. If these drugs gain government approval, the stocks skyrocket. Also, drug approval garners takeover interest. Many of the big drug makers do not conduct niche research. For this reason, it is more advantageous to purchase an approved drug rather than create it themselves.
Progenics Pharmaceuticals, Inc. (NASDAQ : PGNX) develops medicines and other technologies to target and treat cancer in the United States and internationally. Cancer treatments are among the most researched in the world today. It is a tragic and expensive disease. There is no telling how high this stock may trade on such positive news. This stock traded as high as $95 in the past, showing true upside potential with defined risk. Additionally, it trades well below its price target of $13.
Also, this company has enough cash to handle emergency scenarios. Such scenarios are commonplace in this industry, whether it be a lawsuit, or a breakthrough that requires quick cash. It shows a health current ratio of almost 8. The company trades over 1 million shares daily, allowing ample liquidity for entry and exit.
Adverum Biotechnologies (NASDAQ : ADVM) a gene therapy company, engages in discovering and developing novel medicines that offer therapeutic benefit to patients suffering from chronic or debilitating disease. Gene therapy is a new treatment that is gaining much attention. Successful companies recently have been offered huge premiums for their drugs.
Furthermore, this company once traded above $60, and still trades to a discount of its price target of $9. Also, this stock is among the strongest in the market, showing returns over 90% this year alone. When these companies start to move, the moves go further than anyone thinks possible, making it a best stock under $10.
Trading Stocks Under $10
The best stocks under $10 are attractive because of their massive upside potential. The creation of social media allows many individuals to pump some of these flaky names, only to sell to unsuspecting retail traders. This section reveals how to avoid this trap. Additionally, we discuss what to look for in low risk, high reward plays.
Liquidity is the most important factor in the best stocks under $10. A trader may have a great idea, but if he is unable to enter and exit at specific prices, the trade is ruined. For example, if a trader wishes to sell at a certain level, but no buyers exist, he takes a loss he did not foresee. This phenomenon greatly diminishes returns over time.
Furthermore, analyst coverage is an important aspect of these stocks. Analysts offer opinions on news releases and what they mean for the future of the company. These analysts give price targets and recommended portfolio weightings. Common practice in this space is finding an analyst that matches with an investment or writing style, and following his picks. This analyst offers opinions on different names that investors may not have traded previously.
Finally, upside potential is important in these stocks. The stock must have room to run. This is identified by short interest, analyst price targets, or historical high prices. Historically high prices act as a magnate once stocks start to run. Short interest shows how one-sided a trade is. When this best stocks under $10 start to run, shorts cover aggressively, creating tremendous buying pressure.
Final Thoughts
Investing in low dollar stocks is a popular idea, but also a hard strategy to execute. Details discussed in this article narrow the investment spectrum and target good candidates for upside gains. As always investors much do due diligence and read analyst research before buying shares of a company. However, these stocks offer a fixed amount of risk for potentially limitless returns.
