Bull market, bear market, or trend-less market? Regardless of what stage of the market cycle we're in, some folks never tire of searching for cheap stocks to buy.
And who doesn't love a bargain?
After all, the lure of finding a stock that triples from $1 to $3 a share, or quintuples from $5 to $25, may prove irresistible.
However, are there any unique problems or subtle challenges with this strategy of hunting cheap stocks to buy? Yes. Let's consider a few.
Hundreds of stocks trade at a "low" price on both the Nasdaq and the NYSE. So, how can you pick the winners consistently?
Here's another problem: IBD research consistently finds that dozens, if not hundreds, of great stocks each year do not start out as penny shares. Most institutional money managers don't touch cheap stocks. Imagine a large-cap mutual fund trying to buy a meaningful stake in a stock that has been trading a dollar a share. If it has thin trading volume, the fund manager will have an awfully tough time accumulating shares without making a big impact on the stock price.
Cheap Stocks To Buy: First, Understand These Pitfalls
Another cold, hard truth that proponents of penny stocks don't tell you? Many low-priced shares stay low for a very long time.
So, if your hard-earned money is tied up in a 50-cent stock that fails to generate meaningful capital appreciation, you might not only be nursing a losing stock. You also face the lost opportunity of investing in a true stock market leader in Leaderboard or a member of the IBD 50, the Long-Term Leaders, or IBD Big Cap 20.
Zoom Video Comm Cl A (ZM)
Let's consider Zoom Video (ZM) and telemedicine pioneer Teladoc (TDOC) in 2020, after the coronavirus bear market ended. These two and many others traded at an "expensive" price when they broke out to new 52-week highs and began magnificent rallies. But the quality of their business, the supercharged growth in fundamentals, and significant buying by top-rated mutual funds affirmed that their premium share prices signaled a high level of quality.
Zoom Video, after clearing a deep cup base at 107.44 in February 2020, went on to rise nearly sixfold to its 2020 peak at 588. So, how about the year 2021? Zoom stock is struggling as it forms a new base and tries to bottom out.
Shares lost buying support at the 50-day moving average on Aug. 11. The company announced second-quarter results on Aug. 30 after the close, and announced Q3 results late Monday; since then, shares have sunk as much as 67% below their all-time high of 588.
Teladoc Health Inc (TDOC)
Teladoc roared past an 86.40 proper buy point in mid-January 2020. Seven months later, the stock hit 253, up 193%. Now?
TDOC stock is still living well beneath its key 50-day moving average, a bearish sign. The 50-day moving average offers chart readers a critical technical level of medium-term price support and price resistance. Plus, Teladoc is struggling hard to bottom out and build a new
Zoom And Teladoc Aren't Alone
Adobe Inc (ADBE)
Leaderboard member Adobe (ADBE) cleared a 157.99 entry in a five-week flat base in the week ended Oct. 20, 2017. The megacap tech marked a new high of 536 in early September 2020 before cooling off.
In recent weeks, Adobe has continued to flex strength.
In the summer this year, the video editing, document management, and data analytics software giant staged another new breakout past a new buy point, this time at 525.54. ADBE soon gained more than 28%, easilysurpassing the 20%-25% profit-taking zone. Adobe has been a mainstay on the IBD Long-
