What are cheap stocks?
You are probably wondering how a company could find itself in this situation, since a large hedge fund or a very experienced investor may have quickly absorbed the undervalued stocks, so that you can find a lot of best stocks under $2. The reality is that there are many different reasons why a stock may be undervalued, for example:
In a panicked market , investors often think emotionally rather than rationally. This means that panic selling can cause a decoupling between an asset’s current price and fair value.
There are times when a company can go through some trouble caused by negative news, fraud, a scandal, or even political or economic changes. This means that the company’s share price can drop significantly if investors choose to sell and invest in another asset until the problem is resolved.
Investors often use these scenarios to buy undervalued stocks due to the fundamental assumption that the stock price will re-correct over time and approach the actual price. Later we will see examples of cheap stocks in this final stretch of 2021.
How to find undervalued stocks?
There are a wide variety of ways to find cheap stocks. The most common go through fundamental analysis or technical analysis and generally, through a combination of both.
Today, most traders use a combination of both types of analysis. However, when identifying undervalued stocks, there are some very specific financial ratios and metrics that investors like Warren Buffett and Benjamin Graham use. Let’s take a look at some of these metrics.
Price / Earnings Ratio (PER)
Price-To-Earnings (PER) compares the price of a company’s stock to the earnings it is making. It is one of the most popular ways to measure the value of a company.
Price / Earnings to Growth Ratio
The Price / Earnings To Growth (PEG) ratio refers to the PER compared to the expected future growth for the company, generally for the next five years. This gives investors a general idea of the potential profits of the company.
Book Value Ratio
The Book Value Ratio (PVC, Price to Book Value) is used to measure the price of a company’s shares in relation to their book value. The book value of a company is nothing more than the value of its assets minus its liabilities, divided by the total number of shares issued.
Financial Profitability Ratio
The Financial Profitability Ratio (ROE, Return on Equity) measures the general profitability of a company against its equity. The ratio is calculated by dividing the company’s net income by its net worth.
Dividend yield
The yield dividend is one of the most popular ratios among investors. It is used to calculate the relationship between a company’s annual dividends and its share price. Dividends are a part of the remuneration to the shareholder by the listed companies.
Four cheap stocks to invest in 2021
Intel
Intel can be considered a cheap company on the stock market since the price of its shares, after reaching highs (65.45) in April, is now around 52 dollars, a level that it has already exercised. of support and resistance repeatedly. If supply stabilizes and gets closer to demand, it would be a sign that Intel could rally on the stock market.
Wells Fargo
In this context, Wells Fargo, one of the large US banks, would be presented as an attractive option on the stock market since, after starring in several scandals in recent years, it seems that it is beginning to set course under the command of Charles W. Scharf, appointed at the end of 2019. After registering lows in October 2020, the bank’s shares have risen to around $ 47.
Airbnb
Another sector that is beginning to recover from the hit of the Covid-19 pandemic is tourism. Now that a high percentage of the population is vaccinated, the companies in the sector are beginning to recover. One of them is Airbnb, a company that debuted on the stock market on December 10, 2020 at $ 68 per share.
Coinbase
With the cryptocurrency boom on the rise, Coinbase , the world’s leading cryptocurrency exchange, which recently debuted on the stock market, may be another undervalued company. For now, it is the only cryptocurrency exchange listed on the markets, although competitors such as Kraken could soon go public.