There are a lot of stocks under 20 dollars out there. Do they belong in your portfolio?
There’s something attractive about stocks under 20 dollars. They’re inexpensive enough that you can buy a nice, healthy position in them. They’re affordable enough that you can dabble in them and not worry about losing too much if their value drops. They’re inexpensive enough that if you can find one with a steady dividend, you can enjoy a steady income and not worry too much about the stock price.
There is also a vast range of stocks under 20 dollars. For example, there are blue-chip stocks like General Motors Company (GM) (which briefly fell to around 14 dollars in March 2020) to any number of cryptocurrencies, many of which trade for less than a penny.
For the sake of ease, let’s stick to stocks that we can find on one of the major exchanges, and aren’t too speculative. In other words, let’s first determine what kind of stocks we want in our hypothetical portfolio, then we’ll go from there.
[text_ad]
What kind of stocks are we looking for?
Let’s put price aside for a moment. There are good and bad stocks in all price ranges. Sure, you can assume there’s some truth to the idea that you get what you pay for, but that’s not always true. Ever eat at a “really nice” restaurant where the service was mediocre, the food was bland, and the bill was unbelievable? I rest my case.
So what do you want from a stock? What does your ideal portfolio look like? This is where we need to begin. We’ll get to the price of stocks soon.
Of course, your ideal portfolio may look very different from someone else, but your average investor probably has a mix of value stocks, growth stocks, and maybe a speculative stock or two in the mix.
Value stocks are pretty much what they sound like. These are stocks that are selling for less than they’re worth. That moment when GM was selling for 14 dollars is a good example.
Growth stocks tend to be fast-growing companies in innovative fields. These are the stocks that can earn triple-digit returns and make you smile when you look at your portfolio. The caveat to growth investing is that the companies are less mature, have smaller margins, and typically don’t pay dividends. Thus, the stocks can be very volatile, especially around earnings season. You can find these stocks under 20 dollars, but you need to keep your eyes peeled. Once they take off, they really can skyrocket.
Speculative stocks are for those who don’t mind dedicating a portion of their portfolio to risky endeavors. These are the stocks you find for as little as a few dollars and hope that they pay off. These are often small-cap or micro-cap stocks.
Adding stocks under 20 dollars to your portfolio
Warren Buffett once said that price is what you pay, and value is what you get. In other words, the price of a stock is not necessarily in line with the value of that stock. That’s true with value stocks, as mentioned above, but that works in reverse, too. More than a few stocks have sold for far more than they should have.
So when you’re thinking about adding stocks under 20 dollars to your portfolio, look beyond the price. Does the company have a good product or service? Are they making money? Here are some examples to give you an idea of what these stocks might look like.
Peloton (PTON) hit a low of 17.70 in 2020 and proceeded to go up by 424%. Crocs Inc (CROX) was at 17.53 in 2019. The stock rose 60% that year, another 48% in 2020, and is up 79% in 2021, and the year isn’t over.
Even Tesla (TSLA) was selling for around 35 dollars in 2019, which is obviously above our price range here, but given its price increase, that would have been money well spent.
This isn’t to say that stocks under 20 dollars will give you these kinds of results. Electric vehicle company Nikola (NKLA) started 2020 around 10 dollars then skyrocketed to just under 94. That’s pretty cool if you bought at 10 and sold at 94. It’s not so cool if you bought on the way up only to have the stock steadily sink since then. You can still get it for under 20 now, but do you want to?
As you can see, price is just a number. Stocks under 20 dollars are great. They open up the world of investing to so many people who don’t have the money or desire to jump into expensive stocks like Apple (AAPL) or Microsoft (MSFT). Just look for the stocks that show promise.
And if you want some help finding those, be sure to browse our website, sign up for our daily emails, or explore our premium advisories, where we give you detailed advice on investing to meet your goals.
Do you have a favorite stock that you bought for under 20 dollars?
