How to Find Stocks Under 10 Dollars for High Returns
I’ve found five stocks under $10 a share that have returned an average of 110% so far this year…and they could be just getting started! These small-cap, penny stocks are flying under Wall Street’s radar and are staring down huge catalysts for growth.
In this video, I’ll not only reveal these five stocks but show you how to find penny stocks for your portfolio.
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Why Stock Price Does Matter for Cheap Stocks
Those of you in the community know I’m a fundamentals investor, looking at that long-term upside in stocks through a company’s financials. It’s the work I did over a decade as an analyst and I truly believe that’s how you make the best returns on your money.
…but that doesn’t mean I’m not ready to make a quick profit when I see the opportunity. Trading in an undervalued name with that near-term upside. And there’s no better place to do that than in penny stocks under $10 a share.
Now at its core, there’s nothing special about a company with a stock price under a certain amount. That price is just the market cap of the company and the number of shares issued in the market.
Stock price shouldn’t matter!
But in reality, it does. Because most investing sites don’t allow fractional shares, meaning you need to invest at least enough to buy a whole share, that means there are just more investors to buy shares of cheaper stocks.
There are many more investors that can put down a hundred bucks to buy a dozen shares of a stock under $10 versus the number of investors that can afford to buy a single share of Amazon for over $2,000 each.
There’s also the impression that these low-price stocks are inexpensive. It’s just a visual reaction to a lower number I realize but it does mean stronger investor sentiment and that goes a long way for short-term investing.
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How to Find Inexpensive Stocks under $10 a Share
So I searched the 8,700 stocks available that trade at or below $10 a share to find five penny stocks to buy right now. Five stocks with the potential for fast returns and long-term profits.
In fact, I’m putting these five stocks in my Webull paper portfolio with $10,000 each. I love the option on Webull to create these test portfolios and different strategies.
Webull is a newer online platform but perfect for stock traders. It’s completely free to invest, you’ll never pay a commission to buy or sell, and the app is set up for stock trading in a way that Robinhood can’t handle.
With Webull, you not only get free trading but also access to extended hours quotes before and after the official market open.
I’m putting together a review of my experience investing on Webull but I want to get to those five penny stocks under $10 so I’ll leave a link here to learn more about the site. Just like some of the other free apps, you’ll get a free share of stock when you open a Webull account so make sure you check it out.
Now those in the community know I’m not just going to tell you what stocks to buy, instead I want to show you how I picked these stocks and how to do that on your own. So just a quick rundown of how I filtered for these five stocks picks.
I started by screening on Morningstar for small cap stocks with a market cap under $1.5 billion and a price around $10 or lower. You can adjust these a little if you like, maybe looking for even smaller companies or stocks under $5 a share. I like narrowing this to small cap, penny stocks because that’s where the biggest opportunities lie.
These smaller companies just aren’t covered as much by Wall Street analysts. While shares of Apple might have 30-plus analysts pouring over its financials, there might only be a couple people looking at these smaller companies. That means more opportunity to find undiscovered winners.
I also narrowed my list to companies with increasing revenue and income as well as a healthy balance sheet. So here you can filter for sales and income in the last twelve months that are higher than the year before and maybe a debt-to-equity ratio that’s lower than the industry average.
One of the biggest risks with penny stocks is the volatility in finances, that lack of financial flexibility compared to a trillion-dollar Apple or Amazon. So you definitely want to pay attention to make sure the company has a strong income statement and solid assets.
Is Buying Cheap Stocks Worth It?
Stock markets provide the opportunity for investors to purchase shares of companies, with the aim of selling them on when they are more valuable. This is achieved through two ways: growth and income.
Companies can grow by becoming more efficient or expanding their business. Increasing efficiency makes each unit sold become more profitable (by reducing costs or increasing revenue). Growing the business typically involves either starting new branches in different countries/regions or acquiring other businesses.
This process involves spending money but also increases future profits substantially, especially if done well (and at the right time). To finance this expansion, companies offer additional shares (for sale) or offer loans (at interest). Investors who buy these shares make a profit if the company is successful in growing, but lose out if it fails.
In contrast to growth, companies also make money by paying dividends to shareholders (a portion of their profits). This benefits investors because instead of waiting for a share price increase you immediately receive some of the profit as an income. Dividends typically yield more than interest received from loans and so offer less risk.
When buying shares there is opportunity cost: if you buy one share at $20 then sell it later for $25 you have made $5 on your initial investment, but could have also invested that money elsewhere and earned interest on it. The same principle applies when purchasing multiple shares: any future returns are given up for immediate income/dividends.
This is relevant because companies may not be successful in growing or paying dividends (or both). Instead, they may waste their money and offer shares/loans which are not bought up, reducing the share price.
This is why buying “cheap” stocks can be beneficial: If their value has fallen relative to other similar companies then it means there is an opportunity for higher future returns.
5 Cheap Stocks to Buy Now
Our first stock under $10 is Zynex, ticker ZYXI, a $259 million medical device manufacturer. Now this company has been around for 23 years but just graduated to listing on the Nasdaq this year which is a big boost to credibility and investor sentiment. Shares are up over 220% so far this year but could have a lot further to go.
Zynex earns most of its revenue from a non-invasive electrotherapy pain management device. That’s about 90% of sales with 60% of it recurring on monthly supplies. I love that recurring chunk of revenue and the company is developing a blood volume monitor and growing into the EEG diagnostics space as well.
Zynex has booked 12 consecutive profitable quarters and orders were up 65% in the first half of 2019. It paid out a special dividend in the fourth quarter last year which is extremely rare for a small cap stock to pay out a dividend but the company has $10 million in balance sheet cash and no long-term debt so an excellent financial position.
Test your investing strategies and stocks out before putting your money down. Try out the stock simulator on Webull!
Next up is PaySign, a $500 million vertically-integrated provider of prepaid cards and payment processing services.
Now I really like the payment processing space and PaySign has a lot going for it with its own card. It’s growing in pharmaceutical payments and preparing to launch a PaySign Premier Card.
The company reports over 2.5 million cardholders and is growing revenue at a 54% annual rate. Even more impressive though is that it’s booked 100% client retention for eight years running.
This is another one with a stellar balance sheet, $6.3 million in cash and no debt, for that ultimate financial flexibility. Shares are up by 205% this year and even though this one just crossed into that $10 a share mark, I had to include it.
My third pick for best picks under $10 a share is Farmland Partners, ticker FPI, the largest US public farmland REIT.
FPI holds over $1.1 billion in assets across North America with 162,000 acres in 17 states. Properties are managed by 125 farmers growing over 30 major commercial crops.
An old Iowa boy, I’ve always loved farmland as an amazing investment and this one has some big long-term potential as well as a near-term catalyst.
First is just the trend to increasing food demand and land scarcity. A growing global middle class is eating more meat which means less land is being devoted to other crops. On top of this long-term trend, you’ve got a near-term catalyst in China’s return to buying US ag products.
This is a solid diversifier for your portfolio. Not only do you get a real estate investment trust with a nice 2.9% dividend but farmland returns have historically beaten the market. Over nearly five decades to 2018, farmland has returned a 10% annualized gain versus just 6.8% for the S&P 500 and a 9% return for all REITs.
Next here we have Green Brick Partners, ticker GRBK, a home builder with land development kicker focused in the Atlanta, Dallas and Denver markets.
I like the idea of combining that homebuilder model with owning and developing the land as well because it delivers more control over the projects and solid profits. Green Brick continuously outperforms other small- and mid-cap peers in the space with a 10.2% pre-tax income margin versus an average of just 5.7% for other small-cap companies.
This one also has a stronger balance sheet versus other builders with just 29% debt-to-capital versus an average of 43% for the 15 companies in the space. Green Brick just passed that $10 per share level with a 35% increase so far this year but low interest rates should mean strong home-buying and profits to come.
Ryerson Holding, ticker RYI, is a $376 million leader in processing and distribution of industrial metals founded in 1842.
Ryerson has grown its market share in industrial metals from 3.8% in 2014 to a target of 6% in the US market. It’s also improved the gross margin, that’s profitability on sales after paying suppliers, by almost 5% since 2007. These are some really strong performance measures for a 177-year old company, the fact that it can continue to compete and improve profitability.
The company is continuously profitable even as the broader industrial climate weakens and has produced a 42% return already this year.
I’m putting these five stocks in my paper portfolio on Webull and will be tracking it for the rest of the year. Click here to learn more about free investing on Webull and get your free share of stock.
Read the Entire Portfolio Stocks Series