Low-Cost Tech Stocks: Options on Survival
When you look to buy a tech stock trading between $1 and $3, you have to be clear that you're buying shares in a potential bankruptcy. Stocks in this category are option plays on survival, and you should buy them only if you can afford to lose 100% of your money, as stocks become worthless at bankruptcy.
Keep in mind that if you buy a stock option, that option expires worthless at its expiration date. In the case of buying a stock trading under three bucks, there is no expiration date, but it is worthless on bankruptcy, so the price you pay is the premium.
My fundamental model shows that technology is now 14.4% undervalued, with health care the only other undervalued sector at 4.2%. All other sectors are overvalued, with energy 9.7% overvalued after getting the most investor attention for much of 2005.
This is an environment where some speculation on low-priced technology stocks should be considered, and I highlight three potential survivors below.Demand for upgrades in broadband and related Internet protocol applications should help Lucent
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