Cheap Stocks to Buy Now: A Comprehensive Guide

Investing in the stock market can be a daunting task, especially for beginners. One common approach is to look for 'cheap' stocks that offer potential for growth and returns. However, what does it really mean for a stock to be cheap? Is it simply about buying low and selling high, or is there more to it?

In his book, Ben Graham emphasized the importance of margin of safety in investing. He believed that this concept was the definitive characteristic of an investment. In essence, a stock's value must be below its intrinsic worth for an investor to consider it cheap.

One way to determine whether a stock is cheap is by comparing its price to its book value. For instance, if a company's shares trade at 50% below their book value, they can be considered cheap. However, this approach has its limitations. It does not take into account the absolute price of the stock or its intrinsic value.

Many investors are drawn to penny stocks, which trade for less than $1 per share. They may also consider stocks with low absolute dollar figures, such as Elite Pharmaceutical (trading at $0.37 per share) or Hudson City Bancorp (trading below $9). However, these stocks may not necessarily be cheap relative to their intrinsic value.

The key is to understand that a stock's value must be assessed relative to something – either its intrinsic worth or the absolute price of similar stocks. By combining these two approaches, investors can develop a powerful investment strategy.

For example, an investor might look for stocks with low valuations relative to their intrinsic value, such as those trading at 50% below their book value. They could also consider stocks with high dividend yields that are undervalued by the market.

Ultimately, investing in cheap stocks requires a deep understanding of the company's fundamentals and its potential for growth. By combining this knowledge with a solid investment strategy, investors can potentially achieve great long-term returns.

Buying low and selling high is not just about finding cheap stocks; it's also about understanding what makes a stock truly undervalued. By recognizing the importance of margin of safety and considering both absolute price and intrinsic value, investors can develop a comprehensive approach to investing in cheap stocks. Whether you're looking for penny stocks or undervalued dividend payers, a solid understanding of these concepts can help you make informed investment decisions and achieve your long-term goals.

Cheap stocks to buy now 2020