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.
Back by Popular Demand:
Cabot’s 10 Favorite Low-Priced Stocks for 2019
Profit from a select group of low-priced stocks with immense short-term profit potential.
Just look at some of the short-term, double-digit profits our readers grabbed in previous years:
• Pulte Group (PHM)—up 40% in four weeks
• Hovnanian Enterprises (HOV)—up 30% in four weeks
• Melco Crown (MPEL)—up 32% in four weeks
• Gastar Exploration (GST)—up 23% in two weeks
• Seaspan Corporation (SSW)—up 29% in five weeks
We fully expect that investments in this year’s report will be just as rewarding.
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 trade with 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 Cabot’s Low-Priced Stocks for 2019, click here. The once-a-year report will be emailed to you on December 13, 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 Seaspan Corp. (SSW), which few investors know about, but we’ve followed it on and off for many years. The company is the largest containership lessor in the world, with most of its ships leased out on long-term, (man years) fixed-rate charters to huge shipping firms. Despite the steadiness of the business, the stock was out of favor because of industry troubles—one of the largest shippers in the world had gone bankrupt a couple of years before, causing headaches for collections and dumping excess capacity on the world market.
For Seaspan, business was OK, but the problem was its big debt load—few lenders wanted much exposure to the sector. In response, Seaspan slashed its dividend, cut debt where it could and extended maturities. Meanwhile, there were distinct signs of a brewing turnaround—spot charter rates were rising as the excess capacity was soaked up (partly due to huge amounts of scrapping), which would play into the firm’s hands as some of its ships came off charters in 2018.
In the report, I concluded: “Already, the company’s lower common stock dividend (8.5% annual yield) looks safe, with distributable cash flow of more than $60 million per quarter, compared to just $16 million of common dividends. And with the industry turnaround, investors could start looking ahead to higher earnings and payouts in 2018.
As for the stock, SSW has been crushed from a high of 25 in 2013 to around 6 today … close to its lows during the financial crisis. It’s been building a bottom since mid-November, and we think the next big move is up.”
Subscribers bought just shy of 6 in mid December, and SSW immediately headed higher—it was up nearly 30% before the end of January! There was a sharp dip with the market in March, but if you sold some on that initial advance and held the rest (adds risk, but gives you exposure to a bigger uptrend), SSW kept advancing—it eventually motored above 9 in April and up to 10.5 in July.
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 13, and it’s time to get your copy of the report today.
Don’t miss out on this short window of profit opportunity.
Click here to get your report today.