Bull market or bear market? Regardless of what stage of the stock market cycle we’re in, some folks never tire of searching for cheap stocks to buy.
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450% William O’Neil Winner Profited Off Of This Significant Medical Sector Innovation
After all, who doesn’t love a bargain? Surely, the lure of finding a stock that triples from $1 to $3 a share, or quintuples from 50 cents to $2.50, seems irresistible. But do you know the unique problems and subtle challenges of hunting cheap stocks to buy for big gains? Let’s consider a few.
Cheap Stocks To Buy: The Challenges
Hundreds of equities trade at a “low” price on both the Nasdaq and NYSE. So, how can you pick the winners consistently? A second challenge: Most institutional money managers don’t touch cheap stocks.
Imagine a large-cap mutual fund trying to buy tens or even hundreds of millions of dollars’ worth in a stock that trades at 30 cents a share. If trading volume is thin, the fund manager would have an awfully tough time accumulating shares — without making a big impact on the stock price.
Third, IBD’s decades of research find that dozens, if not hundreds, of great stocks each year do not start out as penny stocks. They already trade at 20, 40 or 80 a share before they break out of a bullish pattern, then go on mind-blowing rallies.
Another cold, hard truth that proponents of penny stocks don’t tell you? Many low-priced shares stay low for a very long time.
So, if your hard-earned money is tied up in a penny stock that fails to generate meaningful capital appreciation, you’re not just nursing a dud stock. You face the lost opportunity of getting a true market leader such as names that enter IBD Leaderboard as well as the IBD 50, IBD Sector Leaders, Long-Term Leaders, and IBD Big Cap 20. These stocks often enjoy solid institutional buying, even if their share prices is in the triple or quadruple digits. Institutional accumulation undeniably plays a huge role in successful investing in growth stocks.
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Four Cheap Stocks To Watch And Buy
IBD Stock Screener filters cheap stocks that trade at $10 or less per share and carry the key fundamental, technical and fund ownership quality traits routinely seen among the greatest stock market winners.
Keep in mind that liquidity is often thin. So, you might not get trade executions at an ideal price. So, check the gap between a cheap stock’s best bid and best ask prices, or the difference between what one investor is willing to pay and another is willing to sell. The smaller the gap between bid and ask prices, the less price slippage.
Never forget the No. 1 rule of investing: keep your losses under control.
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Stock No. 1: Silvercorp Rises Again
Silvercorp Metals (SVM), traded on the American Stock Exchange, rallied 3% in rapid turnover on Tuesday. Shares are holding nicely above a base that shows a double-bottom pattern.
This double bottom has a middle peak of 3.91, in between the early July low of 3.27 and a lower low of 2.96.
SVM is very wild. After an initial breakout attempt on Aug. 29, the small cap quickly headed south and fell more than 7% below the 3.91 pivot point. This action was bearish and triggered the most important rule: cut losses short.
Nonetheless, Silvercorp has rebounded fiercely. Shares on Friday retook the prior double-bottom entry at 3.91 and also crossed a trendline entry near 4.
The Vancouver-based miner has operations in Canada and China. Silvercorp’s second-quarter results proved a bonanza. Earnings soared 140% to 12 cents a share on a 20% jump in sales to $72.2 million.
According to MarketSurge, analysts see earnings rising 30% and 35% vs. year-ago levels to 8 cents each in the next two quarters. Revenue is seen up 32% in Q3 to $71.3 million and up 32% again in Q4 to $77.1 million.
Sales over the past four quarters topped $226 million. Silvercorp also earned 27 cents a share over that four-quarter span.
Here are the key IBD ratings for SVM:
Composite Rating: 98 on a scale of 1 to 99
Earnings Per Share Rating: 85 on a scale of 1 to 99
Relative Strength Rating: 92 on a scale of 1 to 99
Keep track of changes in these and other ratings via IBD Stock Checkup.
Logistics Play Replaces Lichen China
Lichen China (LICN) did not follow the path of PDD (PDD), which cratered 28% in late August after reporting disappointing second-quarter results. However, on Sept. 6, Lichen took a huge hit before even trying to break out. Shares plunged 20% in volume that burst 152% above the 50-day average. Since then, LICN has rebounded fiercely.
The daily chart shows the microcap provider of taxation and consulting services attempted a move past resistance at 2.13, its high on Dec. 29, several times since April. In at least four instances, Lichen failed to sustain its rally. The two-day drop on Aug. 2 and 5, when Lichen dropped as much as 33% from its Aug. 1 intraday peak of 2.44, underscores just how risk surrounds cheap stocks, no matter how good their IBD ratings may be.
Another concern: Lichen China, whose market value has shrunk to $51 million, still trades below its IPO price of $4 per share, according to MarketSurge.
Therefore, the stock gets replaced by a new IPO.
Reitar Logtech (RITR) debuted on the Nasdaq on Aug. 23 at $4 per share. It closed the first day at 4.15, then rushed 23% higher the next session. Reitar also made a new high of 6.87.
However, Reitar shares dropped 15.7% for the week, erasing much of its gains in the prior two weeks. Nonetheless, the stock is trying to establish a trading range between 4 and 6. On Monday, Reitar stock sank for a fourth straight session. It’s trying to find a floor at 4.
The Hong Kong, China-based company belongs to IBD’s Commercial Services-Consulting industry group, which ranks 116th among 197 industries for six-month price-weighted performance.
In general, favor companies that are part of a top 40 industry group. See Data Tables for the latest 197 industry group rankings.
The Hong Kong-based firm provides asset management and consulting services to investors in logistic properties. Based on MarketSurge data, the company posts semiannual results. In the six months through March, Reitar reported 4 cents a share, up 63%, on a 361% leap in sales to $22.8 million. Reitar has 62 million shares outstanding and a current market value of $338 million.
Despite the low share price, Reitar has posted numerous sessions in which at least 200,000 shares exchanged hands on a daily basis.
Here are the key IBD ratings for RITR:
Composite Rating: 64 on a scale of 1 to 99
Earnings Per Share Rating: 93 on a scale of 1 to 99
Relative Strength Rating: 33 on a scale of 1 to 99, down sharply from 83
Keep track of changes in these and other ratings via IBD Stock Checkup.
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Stock No. 3: An Aerospace Firm
CPI Aerostructures (CVU), which trades on the Amex and makes structural parts for fixed-wing aircraft and helicopters, bolted out of an early-stage cup pattern with a 2.94 buy point on Aug. 27. Shares climbed more than 4% and hit a session high of 3.09 in thick turnover before cooling off.
CVU, rising more than 1% on Monday for a third straight gain, is trading at the top of the cup’s left lip. For now, CPI Aerostructures is actionable. But investors could also wait until the stock clears the newly formed handle atop the cup as well.
This handle offers a 3.11 entry. On Tuesday, CVU rallied past this buy point, and is thus actionable again.
CPI Aerostructures on average trades just 41,000 shares a day. Yet CPI Aero has been showing relative strength vs. the S&P 500 in recent weeks. Watch to see if its relative strength line breaches its April peak. That could signal unusual strength.
The 5% buy zone from the 2.94 entry point goes up to 3.09. CPI Aero remains in buy range. Yet it’s critical to avoid buying too high in price after a breakout attempt.
One could have drawn a trendline from the cup’s left-side peak and determined a lower, more aggressive buy point near 2.70.
The Edgewood, N.Y., firm began trading on the American Stock Exchange in late September 2022. The company recently reported a 22% rise in second-quarter earnings to 11 cents a share on a 1% increase in sales to $20.8 million. MarketSurge showed no full-year earnings estimates.
The firm’s president and CEO, Dorith Hakim, had previously served as group VP at Parker Hannifin (PH), where she directed the global supply chain for 11 divisions.
A 3.1 up/down volume ratio has risen sharply from 2.3. It remains highly bullish. An up/down more than 1.0 signifies heavy volume during up days vs. down days over the past 50 trading sessions. Please check out this Investor’s Corner for more on the up/down volume ratio.
Here are the key IBD ratings for CVU:
Composite Rating: 95 on a scale of 1 to 99, up from 87
Earnings Per Share Rating: 85 on a scale of 1 to 99
Relative Strength Rating: 86 on a scale of 1 to 99, up from 80
Keep track of changes in these and other ratings via IBD Stock Checkup.
Cheap Stocks To Buy: A New Breakout
Idaho Strategic Resources (IDR), which trades on the American Stock Exchange, entered this column in early July as it was rallying sharply.
On Aug. 26, Idaho Strategic rallied 4% in above-average turnover after bullishly rebounding back above the rising 50-day moving average on Aug. 19.
This column noted that Idaho triggered a new buy as it crossed a trendline near 10.50. One can draw a trendline from the July 10 peak of 11.81. The 5% buy zone goes up to 11.03. At this point, shares are not just extended. Idaho Strategic has also hit the 20%-25% profit-taking sell zone. It’s smart investing to sell at least part of the position into strength and lock in gains before the next correction.
IDR also put in the necessary time to fashion a complete base. So, it’s totally fine for investors to refrain from acting upon a trendline entry and to instead wait for a base to furnish a traditional buy point, which in Idaho Strategic’s case is 11.80.
On Aug. 8, the company announced it was awarded $430,000 in grants to upgrade public power facilities that would help develop the Golden Chest Mine as well as benefit the town of Murray, Idaho.
Idaho Strategic boasts a perfect 99 Composite Rating.
A Quick Round Trip After Breakout
On July 2, the stock cleared a narrow six-week base with a 10.60 correct buy point with vigor. Volume popped to 319,000 shares, almost quadruple the stock’s average over the past 50 sessions. Just five trading days later, Idaho Strategic ran up to 11.80, an 11% gain from the 10.60 pivot. It quickly exited the 5% buy zone, which went up to 11.13.
Shares then fell back sharply. They slipped beneath not only the 10.60 entry but also the 50-day moving average.
The company reported Q2 results on July 30, and they were excellent. Earnings vaulted 467% to 17 cents a share on an 89% jump in sales to $6.1 million.
Cheap Stocks To Buy: Eye The Relative Strength Line
Also in early July, IDR’s relative strength line (drawn in blue in the above chart) moved into new high ground, triggering the RS Line Blue Dot alert on MarketSurge.
From 2018 through 2022, Idaho Strategic posted a cumulative net loss of 62 cents a share. But in 2023, the firm earned 9 cents a share. Operating cash flow at Idaho Strategic was robust at 21 cents per share.
Idaho Strategic, based in Coeur d’Alene, trades on average 120,000 shares per day. The company has a stock market valuation of $180 million and 13 million shares outstanding.
Here are the key IBD ratings for IDR:
Composite Rating: 99 on a scale of 1 to 99, up from 95
Earnings Per Share Rating: 81 on a scale of 1 to 99, up from 45
Relative Strength Rating: 98 on a scale of 1 to 99, up from 96
Keep track of changes in these and other ratings via IBD Stock Checkup.
Cheap Stocks To Buy No. 4: Watch This Bank
Banco BBVA Argentina (BBAR) has made an outstanding short-term run since a breakout in February at 6.37. The bank has lumbered its way back above the 50-day moving average. It’s also building the right side of a new base with weekly gains in heavy volume, a good sign.
For now, the new base shows an 11.87 standard entry. But Banco BBVA also recently surpassed a trendline entry near 10.25. That means BBAR was buyable up to around 10.76.
Meanwhile, a new handle on the cup has formed, rendering a correct buy point of 11.65, or the highest price within its handle.
As this column noted in early June, a strong rally off the 50-day line would trigger a follow-on entry point. However, BBAR failed to rebound sharply at the time. At this point, stay patient and watch for a good base to develop.
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Earnings Turnaround Candidate
Wall Street expects earnings to fall 19% this year to $1.16 a share, up from an earlier estimate of 88 cents.
The Global X MSCI Argentina (ARGT) exchange traded fund has rallied 33% for the year as new Argentine President Javier Milei works to shore up the country’s finances and increase confidence among institutional investors overseas.
Argentina has suffered years of radically high inflation, which all but destroys the purchasing power of Argentine citizens. Yet Milei has received preliminary kudos for cutting government personnel by the hundreds.
Here are the key IBD ratings for BBAR:
Composite Rating: 81 on a scale of 1 to 99, up from 76.
Earnings Per Share Rating: 34 on a scale of 1 to 99
Relative Strength Rating: 98 on a scale of 1 to 99, up from 96.
Keep track of changes in these and other ratings via IBD Stock Checkup.
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Silver Play Shines
A view of the IBD Stock Screener reveals these strong movers lately:
Energy Services Of America (ESOA), Huntington, W. Va., contract-based oil and gas pipeline installer, rallied 8% last week and has cleared a 9.49 cup buy point.
Commscope (COMM) surpassed the 4 price level for the first time since early August of 2023. Shares rocketed 31% last week. And Bioventus (BVS), up 17% last week, has now rocketed more than 90% in the third quarter so far. It also surpassed the 10 price level for the first time since June 2022.
The weekly chart of Bioventus shows at least six weekly gains in unusually heavy turnover since May. That signals healthy institutional demand.
The developer of treatments for musculoskeletal conditions has a market value of $800 million. Yahoo Finance shows a 2024 profit estimate of 39 cents a share.
Cheap Stocks To Buy: How To Spot The Buy Point
IBD’s buy rules traditionally used to add a dime above, say, the handle in a cup with handle, or the left-side peak of a flat base. Now, IBD has reduced it to simply a move past the pivotal price points in these historically proven chart patterns.
Decades ago, William O’Neil, founder and longtime chairman of IBD, preferred to add 1/8th of a point, equivalent to 12.5 cents, to the key resistance level within a base to determine if a stock is in fact breaking out. Before the stock exchanges moved to decimalization of price quotes, stock prices traded in fractions of 1/2, 1/4, 1/8, 1/16, even 1/32nds of a dollar.
A special IBD buy rule, the 5% buy zone covers the ideal price range in which to buy a breakout. Therefore, watch for a potential pullback near the ideal entry.
Another potential entry point, but still a long ways away? A test of support at the stock’s rising 10-week moving average.
Also, keep an eye on IBD’s current outlook for stocks. The best time to buy growth companies: only when the outlook shows a confirmed uptrend.
Want To Find The Best Cheap Stocks? Check Out IBD Stock Screener
The Golden Rule
Finally, never forget the No. 1 maxim of IBD-style investing. If you buy at a proper buy point and expectations get broken, cutting losses short to protect your hard-earned capital allows you to invest in a more promising growth company in the near term.
This means no matter what price you purchased shares for, accept no larger than a loss of 7%-8% on those shares. You can quickly recover from such a deficit. But a 40% or 50% loss requires that you make a 67% to 100% gain on the next trade to get back to break-even.
Even among cheap stocks that you look to buy.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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