Buying low-priced stocks — say, for $10 a share — seems to make sense, Morningstar investment specialist Susan Dziubinski wrote in a blog post this week.
Doing so makes it easier for investors to accumulate a meaningful position in a stock, with the hope that it will surge in value over time, as small fluctuations in a stock price can result in big gains.
Dziubinski noted in her piece, though, that buying low-priced stocks can be risky.
“The low-priced stock landscape is cluttered with untested upstarts, companies that have fallen on tough times run by managers who’ve made poor capital decisions, and shaky balance sheets,” she wrote.
Cheap stocks are often thinly traded, which only increases their volatility.
These caveats aside, Morningstar analysts have come up with a group of stocks for investors interested in buying low-priced shares to consider.
These are higher-quality companies whose shares trade on major exchanges, are currently trading at less than $10 and are also undervalued relative to their intrinsic worth.
Dziubinski points out that quality companies generally have better staying power and stronger balance sheets, and buying stocks for less than they are worth helps dampen the price risk that often accompanies investing in low-priced stocks.
The names on the list all earn Morningstar economic moat ratings of at least narrow, meaning that analysts think that these companies have established advantages that should allow them to fend off competitors for a decade or longer.
In addition, these stocks look undervalued, which means that they are trading below Morningstar’s fair value estimates.
See the accompanying gallery for 10 stocks that were trading for less than $10 at market close Jan. 21. One-year performance is as of Jan. 23.
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