Low-priced stocks are like catnip for many investors.
Novices love them most of all, but sometimes seasoned investors and even professionals fall for the siren song of “cheap” stocks.
The idea of finding some little-known company with a revolutionary product or device before everyone else does, buying a ton of shares while the stock is three or four bucks and then watching as it skyrockets tenfold is a dream that attracts a wide swath of investors.
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Unfortunately, in most cases, it’s just that—a dream. Especially after a powerful bull market year like this one, the vast majority of low-priced stocks are low-priced for a reason—the companies are generally not successful, have little going for them, and, importantly, have little or no institutional sponsorship.
In fact, because these sub-$10 stocks tend to have little trading volume, most big investors stay away from them, which can lead to choppy, trendless trading.
At this point, you’re probably thinking, “OK Mike, I get it—you don’t like low-priced stocks.” However, one thing that attracted me to the stock market decades ago was that there is a time and place for everything.
And, as it turns out, there is a time when low-priced stocks are the place to be.
That time is generally the last couple of weeks of the year through the first few weeks of the new year.
Why is mid-December to late-January such a good time for low-priced stocks?
There are two main reasons.
First, you have the bounce effect, where tax-loss selling (and just a general desire to rid portfolios of losers), usually in late November and early December, serves to depress many of the stocks and sectors that have had bad years. Once this selling subsides around the holidays, many of these stocks bounce nicely for a few weeks, especially if any positive news gets out.
The second reason is much simpler. Nearly every year, the change of the calendar brings a renewed sense of optimism from mid-December to late January—as well as some powerful moves among more speculative, lower-priced stocks.
Historically, some of the market’s best weeks, in fact, occur during this time frame.
This is why, despite my usual avoidance of low-priced stocks, I spearhead Cabot’s Low-Priced Stock Report, in which I recommend 10 stocks that are generally priced in the single digits (though I’ll occasionally foray a buck or two above that).
In the report, I explain each company’s story and why we like it, and give a buy range, advice on loss limits and profit targets.
I’ve been writing the report since 2003, and every year, the vast majority of the stocks will pop 10% to 20% within a few weeks (two to eight weeks is the sweet spot of performance), and we usually have one or two stocks power ahead for a few months or more.
The goal with these stocks isn’t to buy and hold—it’s really to capture short-term gains. But if you catch a tiger by the tail, you can take partial profits after the quick pop and trail a mental stop higher from there.
If you want to learn more about our 10 Favorite Low-Priced Stocks for 2020, click here. The once-a-year report will be emailed to you on December 17, and you can email me at any time with questions about any of the stocks.
I hope you’ll jump on this opportunity!
One Good Example of a Profitable Low-Priced Stock
The year-end low-priced report usually has a variety of ideas—from beaten-down turnarounds to stocks with generally strong charts and rapid sales and earnings growth. Whatever the specifics, I’m usually looking for a stock with a catalyst and an industry that should provide at least a short-term wind at the stock’s back—with the potential for larger gains if the stars align for the stock and the market.
A perfect example of this last year was Osisko Gold Royalties (OR), which in 2018 trended straight down for most of the year (basically cut in half). If you remember, back in December of last year, the market was in turmoil (stocks eventually fell 20% to 25% from their highs), but gold prices (having already been crushed over the prior few years) were holding firm.
Plus, Osisko had a great story—it billed itself as the world’s premier growth-oriented royalty company, with stakes in around 140 different royalty-producing mines, including many that were just coming on line (and thus, about to start shoveling money to Osisko). Indeed, despite what you’d think from the stock price, cash flow for the year had doubled while revenues were up 57%. Throw in expectations of an easier Federal Reserve and beaten-down gold stocks seemed ready to bounce.
And bounce the stock did—readers ended up getting in just a couple of weeks after the bottom, and saw the stock move straight up 42% during the next two months
Of course, not every stock will put on that kind of show, but if you focus buying on a handful of lower-priced stocks with big potential near year-end, the odds favor catching at least a couple of highfliers that can make good-sized gains in a hurry.
You can profit from these low-priced stocks this year as well. The new list will be published on December 17, and it’s time to get your copy of the report today.
Don’t miss out on this short window of profit opportunity.
If you are a current subscriber to Cabot Growth Investor, Cabot Prime or Cabot Prime Pro you will receive 10 Favorite Low-Priced Stocks for 2020—free—as part of your subscription.
Click here to get your report today.