Investors have a huge appetite for cheap stocks with single-digit prices because they feel like they can buy more shares and have a better chance of scoring a huge gain.
Unfortunately, that theory that has little to no basis in fact, but it is one of the psychological factors that just never seems to go away.
The absolute price of a stock is not the most important thing to consider when buying a stock. Instead, the fundamentals of the company should matter most. Fortunately, we have Portfolio Grader to help us identify those cheap stocks that should be avoided.
Here are three cheap stocks that are single-digit prices for a reason and should be avoided:
Wausau Paper (WPP)
Wausau Paper (WPP) is a great example of a cheap stock that is cheap for a good reason. Wausau Paper makes paper towel and tissue products and sells in the US and Canada. Simply put — business is horrible.
Wausau Paper is losing money and posted huge negative earnings surprises in three of the last four quarters. Analysts do not expect much form Wausau Paper anytime soon either and have been lowering estimates for this year and 2015.
As business conditions and fundamentals just keep getting worse, Portfolio Grader downgraded WPP stock to an “F” last month. Wausau Paper is a “strong sell.”
Ignite Restaurant Group (IRG)
Ignite Restaurant Group (IRG) owns a bunch of restaurants under three different brands. Ignite has 136 Joe’s Crab Shacks, 20 Brick House Tavern & Taps and 179 Romano’s Macaroni Grills in 36 states and franchise Macaroni grill locations in 10 international markets.
Unfortunately for Ignite, casual dining is just not a fantastic business right now. Consumers are still cautious competition for where dining dollars are spent is fierce.
Ignite won’t be profitable this year nor will the make money in 2015. IRG stock has been dropping for the better part to of the last year, and Portfolio Grader suggests that it will continue to do so as it ranks Ignite Restaurant Group a “strong sell.”
SandRidge Energy (SD)
SandRidge Energy (SD) explores for and produces oil and natural gas in the Mid-Continent region of the U.S. Investors trying to bottom fish SD stock have been getting crushed this year and probably will continue to be for the foreseeable future.
SandRidge Energy is expected to earn less money in the third quarter than they did a year ago, and analysts have been lowering their expectations for SandRidge Energy. Portfolio Grader recently downgraded SD stock to an “F,” and shares of SandRidge Energy are a “strong sell” at the current price.
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Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.