Is Cheap a Bargain?

Michael Sheehan

Physician's Money Digest, December31 2004, Volume 11, Issue 24

Tip:

Would you rather own 500 shares ofa $50 stock or 5000 shares of a $5stock? Some investors look at it thisway—if the $5 stock gains another $5,that doubles your money, whereas a $5gain on the $50 stock is only a 10%profit. Market mavens urge caution,however. A stock that sells for $5 or lessa share is usually in the tank for a reason,and the prospects for recovery maybe slim. Also, trading in low-price stocksmay be thin, which magnifies their risk,since they are more prone to wide priceswings. Check for solid companyearnings, rising sales, and growing profitmargins—strong fundamentals thatyou're not likely to find in stocks thatsell for less than $10 a share.