In the stock market today, with all its uncertainties in the economy, many investors are looking for cheap stocks to buy. If you are a new investor in the stock market, and you are looking for stock tips on which company’s shares are cheap, be warned not to confuse a fall in price as meaning the stock is cheap. There are many other points to consider before stock picking any companies with a low share price. Many people have lost money from buying shares they thought were lower than usual, only to see the price fall further. You need to look at factors other than share price when considering a stock.
Before you select your stock picks on what you consider cheap stocks, you need to look past the share price and look at the company. Fundamental analysis of the company will determine if the company really is a good buy. Looking at the people running the company, the financial status, the sector, and the competition, will give you a better picture to whether the company will grow and see an increase in its profits. If the company has outstanding debts, little cash flow, poor growth in the sector, and its competitors are large cap companies, then it is unlikely that the company will recover quickly. It may even go bankrupt. In his case, a low share price may not make it as cheap as it looks.
If after fundamental analysis, you find the company to be undervalued with good financial health in a growing sector, and it holds a large part of the market, then it may be a good stock pick for you to buy. Once you have selected cheap stocks that are really undervalued companies, you can do a technical analysis on the market; this will allow you to find out where a reversal in trend may occur. If you are able to buy stocks just before the bulls step into the market, you will increase the chance of profiting.
To further increase the overall profit on your investments and make your cheap stocks even cheaper, you can minimize costs on buying the stock by using a discount broker. They have much lower commissions, because they will only execute your order to buy or sell. You can further reduce your costs by buying ETFs or mutual funds. Instead of buying individual stocks, you can invest one sum of money and benefit from the returns on multiple stocks in your fund.