Since the market crash in the first quarter of 2020 that ended the longest bull run in history, stocks have quickly recovered and are already at new all-time highs. Investors who got cold feet while picking bottoms or, at least, failed to put faith in the renewed rally would be left scrambling for bargains at the market's current level.
Nonetheless, it's not entirely impossible. Here are great companies with solid fundamentals that are often overlooked by investors. Check out this list of the best stocks under $20 that might be worth your attention!
Where Can I Trade Stocks under $20?
You need a broker to invest in stocks under $20. Online brokers are the most cost-effective method to invest in or trade stocks because of their relatively minimal costs, with most platforms allowing zero commission trading. It is also the most convenient since investing directly in a company requires huge initial setup costs that eat much of your potential returns.
You should be concerned with the kind of trading support (e.g., research, analysis, tools) your broker provides. A demo account is one way to gain a deeper insight into the range of assets they offer and what it's like to use their services without risking real money.
What Are Stocks under $20?
High-priced stocks didn't start trading publicly at their current price tag. For instance, the e-commerce giant Amazon is worth $3,206 a share (as of writing), but when it first made its shares available to institutional and retail investors in 1997, its stock price was $18! However, over time, the business has been growing, and the stock price has followed.
Still, looking for stocks under $20 doesn't mean setting a precise price point that displaces the standard valuation methods because each company is different. Instead, this is a way of finding bargains among companies considered either too risky, perhaps even insignificant, or flat out undervalued by Wall Street due to certain conditions.
Companies with a share price under $20 may receive consistent high buy ratings from analysts. It is worth keeping in mind that investing in such companies requires a longer-term outlook for the stock price to reflect its true value, and some of these might even be priced so low because of several issues that lead to the inability to survive on the market.
What Are the Trading Hours for Stocks under $20?
You can trade any stock below the $20 price level during the regular trading hours. You need to check on which stock exchange they are trading to be able to manage your position. For instance, NYSE is open from 9:30 A.M. to 4 P.M. (ET), Monday to Friday.
Trading Stocks under $20 in 3 Easy Steps
Open an Account
To start trading, you first need to open a trading account. Take note that you must find a regulated broker that offers the stocks you want to trade. The broker you choose should also provide useful market data tools to support you, like stock screeners, PE tracker, and customisable charting software, among others.
The next step is to pick the company you want to trade. What you need to ensure is that you've carefully set aside some time to look into the company. This stage is where having a great broker will benefit you because you'll have the necessary tools to perform careful analysis.
Place Your Trade
Once everything is set, the last step is to place your trade. Now, you have an active role in managing your investment. It is essential to be clear with your strategy at the very beginning. Therefore, having a predefined metric or even an exact timeframe to exit is key to maximising earnings.
Which Is the Best Stock under $20 to Trade?
Here are the top ten stocks under $20 to trade right now. We’ve also shortlisted the first five to provide a better insight into their business performance.
- Telephone and Data Systems
- JetBlue Airways
- Mirum Pharma
- Alphatec Holdings
- Everi Holdings
- Albertsons Companies
Most investors still consider Nokia as the phone maker that sank in today's smartphone market primarily dominated by two to three major players. However, it could be an excellent period for Nokia as it slowly positions itself in the 5G industry with contracts to build 5G networks in Belgium and Taiwan.
Nokia received a buy rating from most analysts in mid-2020, but its stock price took a dip in the following months.
The film industry is one of the pandemic's victims, and IMAX is a significant player in this field known for its immersive movie experience. However, it was crushed last year as it reported a -$0.75 EPS (earnings per share) in Q3, but it is quickly recovering.
So far, the stock is trading just a few cents under $20 at $19.67 from its lowest point a year ago at $6.01.
Most of LG’s revenue growth has come from the transition to online experiences, and there are plenty who expect this trend to continue. The stock has a buy rating from analysts with an EPS consensus estimate of $0.45, a vast difference from its -$0.77 EPS for 2020.
From dipping in March last year, LG's stock price has been on a consistent rally and gained about 136% by December 2020. It further extended those gains in January and topped at $10.86.
4. Telephone and Data Systems
TDS is one of the companies with a stock price under $20 with high analysts' average price target. Most price models estimate that the stock is currently undervalued. In fact, a comparison of its PE ratio among its peers in the Wireless Telecom industry shows that TDS is lagging.
At $19 a share, analysts target a stock price for this well-established U.S. telecommunications company at $30.90.
The Singapore-headquartered American company had a roaring 2020, with its stock appreciating 41%. The printed circuit board operations still posted earnings despite getting hit by the pandemic and is currently sitting at a $9.2 billion market cap.
Compared to its closest competitors, this is still a cheap stock priced at $18.53, but most analysts estimate Flex will go up soon.
Expert Tip on Investing in Stocks under $20“ Investing in stocks priced at $20 or less usually requires a longer time horizon to generate returns. You need to establish risk mitigation strategies, so you can protect your principal. These strategies can either be a time-bound metric or just purely based on technicals or fundamentals. What matters is that you know when to close your position and whether you've reached your investment objectives or not. ”- Ron Mendoza
Why Trade Stocks under $20?
Trading shares worth $20 or less is a great opportunity to add solid businesses to your portfolio for diversification purposes. This can help you balance out your risk. Do note that you have to exercise extreme caution because it can compromise your portfolio's stability.
Frequently Asked Questions
Both are virtually the same, but stocks worth $5 are termed penny stocks. However, not all stocks under $5 exhibit penny stock characteristics because some great companies can drop at that price level when there is a drastic event, such as an economic crisis.
As with most investments, the answer depends on several factors. However, it's the strength of the underlying business that will most likely determine the profitability of the stock in the long run.
The most profitable type is stocks with proven fundamentals where the stock price merely took a downturn due to specific reasons regardless of business performance.
Companies that don't belong in highly volatile sectors, such as energy and commodities, don't present as much volatility risk; therefore, these stocks would technically be safer to trade.
They can be suitable for traders who are just embarking on their trading journey. However, keep in mind that your capital is at risk, so you need robust risk management strategies.
Most stocks are traded within the market hours of the exchange on which they're listed.