This screen is a bit of a departure from my normal stock screens. Usually I require my screens to have a minimum price of $10 per share. But I do at times scan for stocks under $10. And that’s one of the screens I’m running for myself right now.
One dollar is a common threshold when screening for stocks. A lot of investors actively avoid penny stocks due to the speculative nature, the often wide bid/ask spreads, and the excessive volatility that is all too common in stocks under $1.00.
But some, of course, work out spectacularly well. And that’s probably what keeps people interested in them.
Seeing a stock make a 100% return or 200% return or more from a base of 50 cents, for example, seems easier than investing in a $50 stock or $100 stock and seeing that double or triple.
Five dollars is another common minimum when screening for stocks since many institutional investors won’t even consider a stock if it’s trading under $5. And since institutional investors are usually the ones that can move a stock; having stocks that are open to them is usually a bonus.
And quite frankly, lots of cheap stocks are cheap for a reason, i.e., that’s all they’re worth.
But being over $5 does put them into a different category of consideration. Maybe not the best category, but a step up from stocks less than a dollar.
Stocks Under $10
My minimum has typically been $10. With over 10,000 stocks out there, this minimum quickly lets me cull down several thousand stocks with a click of a button. That doesn’t mean there aren’t any good stocks below that price point, because there are.
And I can recall several sub-$10 stocks in the past that worked out exceptionally well. Maybe it’s because I use them sparingly. Or maybe it’s because I’m ultra picky in selecting them.
Either way, there can be a place for cheaper stocks in your portfolio sometimes.
And that’s what we’re looking at today.
Here are Our Screen Parameters
- Price less than or equal to $10
- Average Dollar Volume greater than or equal to $1,000,000 (Price x volume shows you how much money is trading in and out of the stock on a daily basis.)
- Weekly Volume greater than Previous Week’s Volume (any two out of three weeks) (Want to see increasing volume to show greater investor interest and demand.)
- Zacks Rank less than or equal to 3 (No Sells or Strong Sells.)
- Average Broker Rating less than or equal to 3.5 (Average Broker Rating of a Hold or Better.)
- # of Analysts in Rating greater than or equal to 2 (Minimum of at least two analysts covering the stock.)
- % Change F1 Earnings Estimate Revisions — 12 Weeks greater than or equal to 0 (Preferably upward earnings estimate revisions, but definitely no downward revisions.)
Here are 5 stocks that made it through this week’s screen:
RAD Rite Aid
ONNN ON Semiconductor
CPE Callon Petroleum
DHT DHT Holdings
I think each one of these picks has big potential. And the entire list is worth a thorough analysis.
I would not suggest filling up an entire portfolio of stocks under $10 though. But adding a careful selection of some of the best cheap stock names could add some excess returns to your bottom line, not to mention a little excitement to your stock picking process as well.
Get the rest of the stocks on this list and start screening for the best stocks under $10 for yourself. And don’t forget to backtest your strategy so you’ll know how successful it’s been before you put any of your money at risk. You can do it.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance.