Buying stocks on the cheap is one of those things that everyone preaches about but it is not so easily done. After all, how do you determine if you have bought something at a cheap price? I guess if you buy shares at $20 and sell at $35, then $20 can be deemed a cheap price.
Then you again, it could be that you bought at a rich price only to sell off at an even richer price. Or even worse, you buy something truly cheap at $20, it goes to $10 and you sell -- and then it goes up to $30. We've all been there before.
Cheap, at least to me, is a relative term. It's all about what you are getting for what you buy. Let's look at Blackberry (BBRY - Get Report), formerly known as Research In Motion. Today the stock trades at $16 but a few months ago the shares were trading below $7. By that metric, it a lot of data points suggested that BBRY was undeniably cheap: Cash per share was around $6 and the stock traded for less than one half of book value. Yet even at $16, shares are not unattractive today: you still have $5.70 per share in cash against book value of $18.15.
This article originally appeared on March 20, 2013, on RealMoney. To read more content like this + see inside Jim Cramer's $3 Million portfolio for FREE Click Here NOW.For most investors, determining cheapness should be kept as simple as possible. One way to do that is to buy businesses that have clean balance sheets and attractive assets that are trading below book value. Blackberry passed that test. However, you really had to dig deep into the company to believe in its technology and corporate security network to ascertain that the company wasn't going to be obliterated by Apple (AAPL) (AAPL) and Google (GOOG) (GOOG).
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV