To follow up on my previous post XMSR: my first 9 bagger, you’ll make your biggest gains in the $2 to $10 range, just as I made a nice profit with XMSR. The dollar stocks have a better chance of multiplying your returns because they have more room to rise. A $1 stock only has to reach $2 to double, whereas a $20 stock must reach $40 to double your money.
3 Reasons Why Dollar Stock Make You Lots of Money
Speculation drives the price is up
When lots of investors buy a cheap security, the price increases rapidly because the float (# of company shares available for purchase around the market) is usually higher than normal. These abnormal gains usually occur after a stock has been hyped or upgraded by the major investment firms. A buying frenzy develops as investors become speculative about potential gains and oblivious to fundamentals and corporate numbers.
An example of a speculative stock is Level 3 Technologies (LVLT). Investors drove the stock price up not because of positive results, but because of the recent Youtube deal. The street speculates that LVLT will become profitable, but so far Level 3 has not.
Cheap stocks receive too much negative press
The lower the stock, the more negative press a company will receive. As Wall Street continues to beat down the stock, speculative and/or value investors buy up shares and wait for the bad news to pass. You can take the same approach and use negative press to your advantage. Don’t always pay attention to the street. These corporate analysis are very knowledgeable and yet absurdly inflexible about beaten stocks. They have a job to rate the entire stock market, so do you really think any cheap stocks will get a good review?
Of course not, Wall street labels the stock as junk and move on to the next stock. There’s a huge difference between a broken stock and a broken company; Strong companies rescue broken stocks while broken companies bury broken stocks and file for bankruptcy. Avoid confusing the two and you’ll make some serious cash off the cheap shares.
Dollar stocks have more room to run
A cheap stock like Rite Aid (RAD) has more room to run than a heavyweight conglomerate like General Electric (GE). The higher the price, the smaller the window gets for large stock gains.
I’m especially found of the “cheapies” because dollar stocks are your best chance at picking a 10 bagger. Unless you bought shares of Berkshire Hathaway at $10,000 and watched Buffet’s baby eclipse $100k, better stick to the dollar plays.
If you enjoyed this article, please subscribe to our free stock market newsletter and receive a 10-day email course on successful stock market strategies
{ 1 trackback }
{ 0 comments… add one now }