During times of market volatility, investors are looking to get return anywhere they can. One approach is to find cheap stocks (i.e. stocks that trade for less than $10). It’s not surprising that many of the cheap stocks can be found on Robinhood. This trading app is popular among millennial investors. And those investors are willing to speculate on cheap stocks.
And it’s easy to see why. Buying 100 shares of a stock that is trading for $5 can seem to be a wise investment if the stock moves higher. After all, if the stock price increases just $1, investors can see a 20% gain.
But that is not always the case. In fact, it’s not usually the case. The trap that some investors fall into is believing that these stocks can be the next Amazon or Apple. And while they do offer a potential reward, they also carry significant risk. It’s important to remember that when a stock is selling for less than $10, there’s usually a reason. And in some cases, it means the stock is under selling pressure.
This is one time when it’s important to remember that inexpensive does not necessarily mean the stock is a good value. However, there are some quality stocks that can be found in the bargain bin. And for many of these stocks, the value is found in a solid dividend that can reward income investors.
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