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James Dennin, Kapitall: We looked for investing deals based on analyst ratings and P/E ratios, to find you 6 stocks under 5 bucks.
Micro-caps are riskier than many other stocks. The first concern is the fact that they're usually younger, more volatile companies. And since price changes are likely to be incremental, it's hard to make very much money investing in them without buying a lot of shares. But that means these stocks are also usually high-risk, high reward.
Biotech stocks in particular can be risky, because the success of their stock price often hinges on some sort of FDA approval – a process that can take years. But then, a blockbuster new drug with FDA approval and exclusive access to consumers can send prices soaring.
That being said, while the bargain bin is usually stuffed with more trash than treasure, we at Kapitall Wire are never wary about diving in for a closer look.
We decided to revive
a popular stock screen from Kapitall Wire looking exclusively at stocks that are trading for less than $5. However, to be sure we were looking for bargains and not diving into dumpsters, we decided to add a couple more parameters this time around. The most obvious one? Analyst ratings.
Analyst ratings are released by the major firms who compile data on different securities and weigh the information into ratings. Ratings can refer to whether a stock is a 'buy' or a 'sell' or whether it's expected to 'outperform' its sector or not.
However, since the major banking firms are also in the business of getting their clients to actually buy these stocks – they have a tendency to be inflated. If every stock with a 'buy' rating was sure to go up, playing the stock market wouldn't be that hard at all.
So we screened for stocks under $5 with multiple 'strong buy' ratings. To do this we only looked at stocks that had been rated at least five times, and from at least two different firms.