The word “cheap” gets a bad rap in the stock market.
That’s because we think of “cheap” as being of low value or low quality — similar to a product made “cheap” (think, stuff you buy on Temu or the random knick-knacks in the discount bin at Target).
Cheap in the stock market refers to more than just price. And being a “cheap” stock doesn’t mean a stock is bad. A lot of time, it’s a good thing because the price of a stock is low relative to its fundamentals or earnings.
The reverse of that is buying a stock that you thought was cheap, only to watch it fall because it isn’t making any money (negative price-to ratios), doesn’t recoup investor returns (low to negative return ons) or doesn’t grow its sales or earnings per share.
Why am I talking cheap today?
Well, with major U.S. indexes trading at new all-time highs, you want to know if this rally has legs and what are the best stocks to buy for current conditions.
And after Mike Carr touched on an incredible “hidden” rally within the Nasdaq in yesterday’s Money & Markets Daily, I wanted to look back at similar recoveries to see what we could expect.
Today, I’m looking back at two volatile market years to show you just what some “cheap” stocks — meaning stocks priced under $5 in this context — would have returned for those investors that ignored the “cheap” market noise.
After the Dot-Com Bubble…
From the mid-1990s to the early 2000s, internet stocks were all the rage.
Due to a massive influx of capital from investors across the board, stock valuations went through the roof … to the point where prices were unsustainable.
A lot of these stocks were fledgling businesses or startups that had little to no record of profitability. You all remember Pets.com…
The bubble burst in March 2000, and these stock prices declined rapidly.
Finally, in 2002, the market bottomed out. I looked for lower-priced stocks and found some incredible data.
One stood out among all the others:
Apple Inc. (Nasdaq: AAPL) started 2002 at $0.42 per share.
The stock went on a massive run and, as I write, is priced at $195 per share … a nearly 48,000% jump!
It’s not the only stock that started “cheap” and went on to produce massive returns:
Stocks like Nvidia Corp. (Nasdaq: NVDA), Steel Dynamics Inc. (Nasdaq: STLD) and Nike Inc. (NYSE: NKE) all started 2002 priced below $5 per share.
They all went on to produce massive peak gains of 10,575%, 4,555% and 2,394% into 2024.
It wasn’t the only time stock market downturns yielded “cheap” stocks that turned into huge winners.
2009’s Crash Brought a New Crop of “Cheap”
The start of 2009 was disastrous for the market.
In the first two months of the year, the S&P 500 declined 18.6% — one of the worst starts to the year for the index.
The Dow Jones Industrial Average declined 50% from its October 2007 peak to March 2, 2009.
This was after another bubble popped … this time with housing.
From that low on March 2, 2009, I found another batch of stocks that were “cheap” — meaning priced below $5 per share here — yet went on to produce huge returns:
United Rentals Inc. (NYSE: URI) hit its low of $3.20 per share in March 2009. Since then, the stock has skyrocketed more than 15,000% to where it is today.
Like 2002, it wasn’t the only “cheap” stock that took off:
Stocks like Crocs Inc. (Nasdaq: CROX), Advanced Micro Devices Inc. (Nasdaq: AMD) and Louisiana-Pacific Corp. (NYSE: LPX) returned huge gains after being priced below $5 a share in 2009.
Bottom line: In the investing world, “cheap” isn’t a bad thing.
As you can see from these examples, lower-priced stocks went on to produce market-busting returns, giving those who bought at the right time huge gains in their portfolio.
It’s this research that led our chief investment strategist, Adam O’Dell, to create a new strategy targeting the best stocks priced below $5 on the market today.
The strategy positions bold investors savvy enough to take advantage of these smaller stocks.
You definitely want to learn more about this market-breaking strategy. To find out how you can join and follow Adam’s guidance into these stocks, click here.
Stay Tuned: The Survey Says…
Tomorrow, Managing Editor Chad Stone is going to review the results from our recent survey. Thank you all, for submitting your responses! (You can still add your own submission here if you’d like.)
He’ll also hit on some stocks using Adam’s Green Zone Power Ratings system, because two-thirds of you said you wanted more.
Until then…
Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets