One category of stocks that may hold particular promise is cheap stocks trading at under $5. The word “cheap” in equity investing does not necessarily mean poor quality. When it comes to buying stocks, cheap can mean superior value and exceptional growth potential. Lower-priced shares often have more room to grow, and relatively small price moves can produce large percentage gains when you’re starting from a lower price point.
You do, however, have to be careful with low-priced stocks. Small downward moves will have the same dramatic effect on losses as small upward moves will have on gains. Before you buy low-priced companies, do your homework and remember that equity investing works best over long investment horizons.
This list of five cheap stocks currently trading at under $5 is a good place to start. If these companies successfully execute their business plans and the market cooperates, some of them won’t stay under $5 for long.
This post originally appeared at U.S. News & World Report.