Due to the sharp correction in the stock market in the past two months, most of the high valuation concerns have failed. As value returns to earth, stock prices suddenly look more affordable. In other words, it is important not to confuse low stock prices with attractive values. I remembered when I recently tried to screen stocks with prices below $5 and the price was lower than the price-earnings ratio.
In our constant search for cheap stocks, people often confuse cheap and low prices. However, low-priced stocks are often not small-cap stocks or micro-capital stocks but value-based stocks. In fact, it is more rare than this.
On the screen that I mentioned above, which was implemented using the very convenient stock screening website Finviz.com, I looked for the following: Stocks with a stock price of less than $5 have a P/E ratio of less than $20. Do you want to know how many U.S. stocks large or medium stocks have risen in the United States? Zipper zero. The largest publicly traded company in the United States is Chesapeake Energy (CHK), which has a stock price of 2.90, a forward price-to-earnings ratio of 4.0, a market capitalization of less than US$3 billion, and a chart as follows:
This is an example of why stocks under $5 are not very valuable. So, this is not particularly attractive. All other stocks that match my screen are international stocks that I have never heard of or US stocks with a market value of $2 billion or less. If you are an emerging market investor or a small or micro investor, stocks under $5 are your helmsman. But if you are looking for the value of low-priced stocks, then nothing for you, at least it will not let the US stock price once again threaten the historical high.
Sticker shock may be a real thing, especially for casual or novice investors. It is easy to look at Apple’s (AAPL) stock price of $166 and assume it will continue to fall, especially after rising 16% last year. But when you look closer, AAPL stocks are technically cheap and the price-to-earnings ratio is only 17% – very low for a technology stock with a huge profit growth record.
Amazon.com (AMZN) is another example. At first glance, its $1,392 stock price may scare you. In fact, many of my friends said that they will never invest in AMZN stock (or Alphabet (GOOG)) and strictly limit the four-digit stock price. However, with the high price-to-earnings ratio of 226, AMZN was actually much cheaper than two years ago, when the stock price was in the mid-500s.
This is not to say that AMZN is a valuable stock. But its value is not as much as you think it overestimated the stock price.
Just like Warren Buffett, the greatest modern-value investor, he likes to say: “The price is what you pay for, and the value is what you get.” You can buy high-priced stocks like Apple or International Business Machines Corporation (IBM). $150) This is two of Buffett’s largest holdings.
There are also many high-quality stocks, especially now that the prices have been regressed for two months. If you need help finding the best value stocks, I strongly recommend subscribing to Cabot’s undervalued stock advisers run by our growth and value specialist Crista Huff.
Christa has screened stocks of hundreds of growth, value, and bullish technical charts, and identified stocks that would surpass the major US stock market indices – while minimizing risks. Her biggest winners included a 50% price increase in PulteGroup (PHM) in 9 months, a 53% increase in Goldman Sachs (GS) in 12 months and a 36% increase in Applied Materials (AMAT) in 5 months.
If this sounds like something you would be interested in, click here.
Just don’t expect to find $5 or less in Crista’s portfolio!