For some investors, especially those with limited resources, looking for stocks with the lowest price may be tempting. After all, if a given stock has a low price, you can buy more of it. But just because this stock appears to be cheap doesn’t mean it’s a good buy.
Some of the most expensive stocks in terms of price-per-share can be way better investments than almost any penny stocks.
When looking for stocks to buy, the share price should not matter to you; what matters are the risk and the growth potential. A stock that costs $1 is cheap to buy but not a very good option in case the company is not performing well.
On the other hand, a stock that costs $5,000 a share is expensive but presenting a great value if there’s a solid reason to believe shares may be worth $10,000 next year.
It is not advisable to buy a stock because it is available at a low price. The cheap stocks may be worth even less. Think long term when investing.
Following this thought, it is always better to
Buy Leading Stocks, Not Laggards
There are high-growth stocks and there are leading stocks. The difference between the two is bigger than it might seem.
It’s not enough to have earnings and sales growth of 25%, 50%, or more. You want high-growth companies that stand out among their rivals with well-rounded financial profiles.
For example, of 41 companies in the ethical drugs industry group, 11 had EPS gains of more than 25% in the latest quarter. Of those 11, just five companies have long-term profit growth to complement the strong growth during the latest quarter.
A leading stock will outperform or at least keep up with the market. A laggard will underperform. Look for high-growth companies that stand out among their rivals in an industry or the whole market. A leader is not necessarily the biggest company in its market. Compare their financial profiles and long-term growth.
Do plenty of research before picking a stock. And remember, bigger companies are not always better. Buy leading stocks.