Navigating the world of stocks with share prices under $10 can be challenging, as it often involves identifying potential pitfalls among bad investments. A low share price may signal underlying issues within a company’s business model.
According to Alvin Carlos, a certified financial planner and managing partner at District Capital Management, the focus should be on analyzing the overall health of the business before making investment decisions. This involves evaluating key ratios such as profit margins, return on equity, and revenue growth.
Despite the risks, there are hidden opportunities in the $10 stock market bargain bin. Some stocks stand out with attractive business metrics, displaying profitability and long-term growth potential.
Our selection process involves identifying stocks with share prices under $10 that exhibit strong fundamentals, have a favorable “buy” consensus on Wall Street, boast a market capitalization of at least $50 million, and project forward earnings of less than 14.
Compare the best stocks under $10
| Company | Sector | YTD performance | P/E |
| Assertio Holdings (ASRT) | Health care | 30% | 4 |
| CompoSecure (CMPO) | Industrials | 46% | 11 |
| Garrett Motion (GTX) | Consumer cyclical | -4% | 10 |
| Heritage Global (HGBL) | Financial services | 50% | 8 |
| Vertex Energy (VTNR) | Energy | 5% | 10 |
Methodology
To be considered among the best stocks under $10, companies must fulfill specific criteria on a major U.S. stock exchange. One such criterion is an Altimeter overall grade of B or higher, which takes into account profitability, earning stability, valuation, and earning expectations. Stocks ranking in the top quarter of approximately 5,000 stocks in Altimeter’s database meet this grade, indicating strong valuations and potential for improved returns.
Another crucial factor for inclusion is a minimum market capitalization of $50 million. Stocks with microcaps under $50 million, known as nanocap stocks, tend to be highly volatile and risky due to low trading volumes and limited liquidity.
Additionally, the consensus analyst recommendation must be “buy” or better. A strong number of “buy” ratings implies an expectation that the stock will outperform the overall market, and even a single “buy” rating from a Wall Street analyst reflects confidence from a professional stock picker.
Lastly, an attractive valuation is determined by a forward earnings multiple of less than 14, which is based on analysts’ projected future earnings. Stocks meeting this criterion are considered attractively valued, as the S&P 500’s median forward P/E ratio stands at 18.3, making lower multiples desirable.
Why other stocks didn’t make the cut
Stocks with low share prices may not always present attractive buying opportunities as many of them belong to companies with challenged business models. Identifying good stocks priced at $10 or less can be a rare find in the market.
When evaluating stocks, it’s essential to assess the business fundamentals, especially the earning power in relation to the asset base. This analysis helps determine the profitability and sustainability of the company’s operations.
One key aspect we consider is whether the company is continuously improving its earning power. Companies that demonstrate consistent growth and improvement in their earnings are more likely to be solid investment options.
By conducting a thorough screening of stocks based on these criteria, we can identify potential investment opportunities with the best chances of delivering favorable returns. However, it’s crucial to approach low-priced stocks with caution and conduct in-depth research before making any investment decisions.
Final verdict
Investing in stocks priced under $10 requires a strong stomach, as they are often highly volatile and carry significant speculative risks. However, amid these risks, some hidden gems exist, holding the potential for substantial long-term gains.
To mitigate the risks associated with cheap stocks, diversification is a key strategy. Instead of concentrating your investments on just a few stocks, spreading your funds across various stocks can help balance the overall risk in your portfolio.
Keep in mind that while investing in low-priced stocks can be enticing due to their potential for rapid growth, it’s crucial to conduct thorough research and understand the risks involved. Consider consulting with a financial advisor to make well-informed investment decisions tailored to your individual financial goals and risk tolerance.
