Are Those “Bargain Stocks” Really Bargains?
One of the things that savvy investors do in times of a down stock market is to look for bargains on good value stocks. And there are plenty of bargains to be had right now. Plenty of good value stocks are undervalued, and can be bought at bargain prices.
But there are also plenty of the other kind of stocks: bargain basement stocks that could very well turn out to be more “basement.” These are “bargain stocks” that have brand names that you recognize — and might even respect. It may seem like a steal to get Sprint Nextel (S) or Northwest Airlines (NWA) for less than $10, but is it? Or does the plummeting price mean something else entirely for once venerable brands?
Businessweek explains why it might be a good idea to think twice before buying those “bargain stocks” for less than $10 a share:
What’s the big deal about low stock prices? First, there’s a certain stigma attached to a stock with a sub-$10 price—it’s a sign that a company faces big problems. Besides the blow to a company’s pride, there’s a more nettlesome issue: Some institutional investors won’t touch stocks that trade for less than $10, making it difficult to recover from those depths.
Of course, it is possible to find real deals for less than $10 a share. But these are generally start-up companies and other small companies. Most big time name brands that are below $10 are more than likely there because something has changed fundamentally. When buying bargain stocks, it is important to look for companies with strong fundamentals. That might mean that you still pay $30 a share (instead of $45 or $50).
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.
Tags: stock market, stock market news, investing blog, value stocks,
bargain stocks, investments, NWA
