How To Find Cheap Stocks

Beginners in the investing world may want to start with investing in cheap stocks to gain experience and skills before going all in, in stocks like Tesla, Amazon, Google etc.

There are times where the cheap stocks are very trash and will lose their worth in the near or long future. And the point with investing is to gain more money in the future and not to lose it. 

And thats why this article is created, to help you choose cheap stocks which will gain worth in the near or long future. And Ive created for you a step by step process on how to choose the correct cheap stocks.

Step 1) Choose a stock screener

Here in the first step, you got to find a good stock screener. For these of you who doesn’t know what stock screener is then let me quickly tell you before we move on.

A stock screener is basically a set of various tools that will allow you as an investors to quickly and easy sort through the myriad of available stocks together with increasing exchange-traded funds according to the investor’s own criteria.

Most of online stockbrokers provides you with stock screener. But not all of them are good. The best and easiest ones to use are 1) Yahoo Finance, 2) TD Ameritrade, 3) TradingView, and 4) Finviz.

Stock screener allows you as a user to sort stocks by almost characteristic you may need, want or even imagine. 

In stock screener allows you to input traits which you may sooner or latter want.

Some relatively basic criteria to Stock Screener are growth rates and value which makes it super helpful. The more advanced stock screeners will offer you more criteria and more customisation.

Step 2) Create a target for future earnings growth rate

Defining good companies may take times because there are many ways on how you can define a good company. 

But for the most part a typical one criteria to define a good company is of course “how fast the company is growing”. 

For the most part a quick-growing companies tend to be to more valued by investors.

On the stock screener, will step up for you a screen for a good company’s future earnings growth rate.

A good place to start for you might me around 10% annually over the next five years. And then increase it to 15% or 20% to have a look whats available. And for the record everything which is above 20% is very high and good for you as an investor.

And if it happens that the screener doesn’t have a screen for the future earnings growth then you might consider a screen for sales growth

And if the screener doesn’t have future earnings projections then have a look at the earnings or sales growth for the past five years instead.

Step 3) Use the P/E ratio to find potentially undervalued stocks.

When you got a list of these fast-growing companies. Then you might want to add another criteria. And that another criteria is inexpensive.

The inexpensive relates to undervalued stocks which in the future will gain value. And discovering undervalued stocks sooner before they go up will be a very profitable.

There are a lots of stocks which offer you a low price for every share. However in many case you might not get what you have paid for.

All it takes you evaluate the value of a stock, you as an investor will find yourself often with dividing the current price of one of its shares by its annual earnings per share.  The result is called price-earnings ratio or simply  P/E ratio.


Step 4) Focus on market cap to screen out risky companies

The whole stock screener tool should help you to find dozens of companies which are somehow cheap together with the financial analysts think will grow earnings well in the future.

There is a huge chance that you will end up with more companies than you will need at the beginning. Then you can set the minimum size of the company itself as it is measured by its market capitalisation. And it is to avoid riskier, and smaller stocks which might go down in the future. 

Keep in mind that the smaller the market cap, the riskier the company.

If your list of companies is to big you might consider adding some extra criteria like.

  1. Increasing the minimum growth rate, to 15% growth or something bigger.

2) include only companies that pay dividends. This is a sign of a strong financial health to the company. 

3) And the last thing is the stock screener which are trading near their 52-week low point. And this is to ferret out those that the market has soured on.

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What Is Common Stock?

Common stock for these of you who dont know is a security that represents ownership in a corporation.

Common stock is for the most part  reported in the stockholder’s equity section of a company’s balance sheet.

The investors in common stock in a way vote and elect the directors and vote on corporate policies. This approach of equity ownership for the most part yields higher rates of return long term.

But keep in mind that in the events of liquidation, the  common shareholders have rights to a company’s assets only after bondholders, preferred shareholders, and other debt-holders are paid in full.

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What Happens If You Own Preference Shares In A Company That Goes Bankrupt?

I mentioned this in the previous post about investing. But in this post we will go into a little bit more details.

So let me say this again. If that company at any point enters bankruptcy their preferred stockholders are entitled to be paid from the company left over assets before common stockholders.

The entire order in which these security-holders will receive their share of the assets will for the most part depend on the specific rights given to them in their security agreements.

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What Is Preferred Shares?

Preference shares also known as preferred stock are basically shares of a company’s stock with the dividends that are paid out to shareholders before common stock dividends are issued out.

And if that company at any point enters bankruptcy their preferred stockholders are entitled to be paid from the company left over assets before common stockholders.

Keep in mind that most preference shares have some kind of a fixed dividend. Where common stocks generally dont have that.

Investors in the preferred shares also normally dont hold any voting rights, but common shareholders usually do.

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How Will I Know When To Sell Stocks?

This question is the ultimate question which nobody have a clear and correct answer to. Because there aren’t any guide or 100 % correct answer to when you should sell stocks you bought at some point. 

There is always the risk that after you sell stocks they might go up higher or dive down.

When you buy stocks you need to be prepared to not touch them for a long period of time. Because no one knows when they will go down, just know that no one can predict the future of the stock market. 

There is also a stock market volatility which you need to keep in mind when you are investing. Stock market volatility is a statistical measure of the dispersion of returns for a given security or market index. You could be consider selling your stocks when you need cash and they’ve risen in value, but by doing so means you will be paying the capital gains taxes on the sale. This will lead you to miss out on the future gains which will happen over a specific time.

The question would be easier to answer when it was asked differently in the way of “When not to sell stocks”.  Because then the answer would have been straight forward and simple. The answer to that question would be not sell when the market is falling. 

The market is falling will probably give must of you the urge  to sell your stocks to prevent further losses, but thats the wrong move. Because when you sell your stocks it will create a deeper fall to the market. And thats not the way to go while investing. 

The strategy which you should follow is to wait out the the volatility and aim for long-term gains with the understanding that the market will bounce back over time.

To give a shot on that question I would say that to just use the investing tolls which your online brokerage provides you with and follow your gut feelings. Because investing is kind of personal and no one has the guide and fully correct answers to every question and every situation which will happen. 


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What Are Some Cheap Stocks To Buy Now?

The best way to start this article will be by mentioning that the price of the stock itself doesn’t tell you everything you need to know about a company want to invest in or are considering investing in.

The price itself only reflects on how much investors are willing to buy or sell the stock for. And there is a huge possibility that the company is undervalued or overvalued. 

It’s important that you understand the idea behind the price for each stock. Because the price doesn’t direction in which the company’s stock price is headed or the whole value of the company behind the stock you want to invest in.

It is also important to say that “cheap” stocks doesn’t mean it’s a good or bad buy just as “expensive” stocks doesn’t mean its a good or bad buy.

With that being said, you should look for undervalued stocks and not “cheap” stocks. Because undervalued stocks have better opportunity to bring a lots of cash to your pocket in the future. And when it comes to “cheap” stocks then there are little bit more risk into them because cheap not always means good.

When you are buying “cheap” stocks you are basically gambling on what will happen in the future with that stock. And you should never gamble when it comes to investing, because the goal with investing is to gain money in the future and not lose it. To be honest if you want to gamble your money then go to a casino.

By looking for undervalued stocks, you are using a strategy which a lots of investors use. This strategy identifies proven companies with stock prices that may be lower than the stock is worth due to external factors.

And if you still want to buy cheap stocks then maybe look into various penny stocks and see for yourself if there are some undervalued stocks in the penny stocks category. 


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How Many Shares Should You Buy First Time Investing?

This one depends all on you and how much you are comfortable to invest your first time investing in stocks.

The amount of shares you buy depends on the amount of cash you want to invest at the beginning. 

Every company have different price for their shares which means that you have to suit what shares you can buy to the amount of money you are investing. 

Lets say that you have $600 and you want to invest it all into one company which has their price on stocks at $10 then you are buying 60 shares in that company. 

If the brokerage you choose doesnt allow fractional trading, you will have to round down. This means that if a share costs $61 and you have still $600 to invest then you will be able to buy only 59 shares of that stock. Becuse 60 shares would be $610. 

By the way fractional trading means that you can invest as little money as an investment as you want to.


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Are Stocks And Shares The Same Thing?

The ultimate confusing question which you can find as a newbie in the investing field.

The answer to this question is for the most part yes. But it depends on how you look at it.

Owning stocks and owning shares both means that you own a small piece of a company. 

However normally you will see that the term “shares” are used to refer to the size of an ownership stake in a specific company which of course you as a investor choose. You will also see that the term “stock” is often used as a meaning of equity as a whole.


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How Much Money Do You Need To Buy Stock?

This one is one of the most frequently asked questions when it comes to newbies in the investing field. 

The answer to this question depends on what you are planning to do and what you want to invest in. If your plan is to start with penny stocks or cheap stocks then you will need not so much as someone who is planning to start with buying shares in companies like Tesla, Amazon or Microsoft.

It also depends on the brokerage account you choose and thats because there are some accounts which have a minimum amount of money you will need to put onto that account to fully complete the verification process of your account. There are also brokerage accounts which have fees for transactions and other actions. But there are also brokerage accounts with no account minimums and zero fees.

You can also find brokerage websites which will allow you to buy fractional shares. Which in non-investing language means that if you have only $100 to invest, you could buy a portion of a stock like Tesla which has for months now traded for more than $500 a share.

If you choose right brokerage accounts you will be able to start investing with as little as $10 or something close to that. But that price depends on what company choose to invest in.

Keep in mind that cheap stocks don’t necessarily make good deals and purchases. So be warned about that. 

Before the end comes it is important to mention that the more you invest the higher the potential returns over the long term.


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How Do I Buy Stocks Online Without A Broker?

Since online brokers arrived and more and more people got access to Internet in their homes the investing process have become extremely easy for beginners to sign up for and use online brokers. Which means that everyone who has a little bit of money can invest and not leave their homes to do so.

For almost every new investor the online brokerage account will be the easiest way to get into the stock market. Because they provide you with free tolls and webinars which you will find useful. 

Online brokers are great but if you want to start start investing without a broker you can do so. All it takes is more job for you or for someone you hire if you choose so.

Investing without a broker requires to look for companies that offer a direct stock plan, which lets you purchase shares directly from the company for zero fees or some low fees. Doing this may come with the advantage of investing by the dollar amount and not by the by the share. And it often let investors set up recurring investments on a regular cadence.

There is also a second road to take if you want to invest without a broker. And this road is through a dividend reinvestment plan which allows you as a investor to automatically reinvest dividends back into the stock and not by taking the dividends as income and then reinvest it on your own. 

This one is almost like a direct stock plans, but  you will have to seek out the companies that offer these programs. And there aren’t so many companies which offers these programs


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