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Best Places To Look For Cheap Stocks

By Mark Riddix

Everybody loves a bargain. This is why so many people flock to department store for sales on Black Friday and President’s Day. The same principle applies to investing. Everybody wants the best deal for their money. Nobody wants to pay full price for an asset unless they have to. So, where can you go to find a discount on investments? There are some great sites online that you can use to find the best value stocks:

52 Week Low List

Momentum investors chase after stocks on the 52 week high list. Value investors do the exact opposite. If you want to find cheap stocks, you should scour the 52 week low list. This is one of my favorite places to look for potential buys. Check out sites like Google Finance and Bloomberg for investments that have recently hit their lows for the year. You can get some real value from off of this list. Be careful though because you need to be able to distinguish between a “dog” stock and a stock that has dropped unfairly. You can’t just choose any name on this list; you need to find the ones where nothing drastic has changed about the company’s underlying fundamentals yet the stock price has dropped significantly.

Analyst Downgrades

Stocks normally see a huge spike in price and volume when they receive an analyst upgrade. Stocks that receive analyst downgrades have the exact opposite reaction. Institutional investors and individual investors unload shares that are no longer rated a “buy” by rating agencies and equity analysts. Look for analyst downgrades on sites like Yahoo Finance and CNBC. Wait a few days after the downgrade and then pounce. You can find quality companies selling cheaply just because a stock has fallen out of favor with an analyst.

Money Flows Buying On Weakness

The Wall Street Journal’s Money Flows Buying On Weakness chart is a list of stocks that have dropped and seen the largest inflows of money. This list is updated every 15 minutes and shows you exactly how much money is coming into a stock versus the money going out. This is a great tool for helping you evaluate which beaten down stocks investors feel the strongest about.

P/E Ratio Laggards List

If you want to find the cheapest company in a sector, search through their P/E ratios. It can be time consuming to check every company’s P/E ratio. That’s where the P/E Laggards list comes into play. This list is a good place to start. The P/E laggards list will rank companies from the lowest P/E to the highest. Companies with low P/E ratios and solid growth rates may be great investment opportunities that the market is discounting. Be careful when it comes to P/E ratios. P/E ratios are very industry specific and shouldn’t be used as the sole valuation tool. And if you are intent on using ratios, there are other important multiples to consider such as Enterprise Value/EBITDA, Enterprise Value/Revenue, and Price/Free Cash Flow.

Are there any particular resources that you use to find stocks that may be on sale? Any undervalued stocks you’ve been lucky enough to pounce on in the last year?

(Photo credit: Katrina.Tuliao)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • Phil Gorian

    Those are good suggestions. Companies in down cycles can provide great investment deals as well.

    • Mark Riddix

      Thanks Phil!

  • Kurtis Hemmerling

    Good article Mark. I personally like to find deep value stocks that are trading low based on downgrades, 52 week lows, and low PE ratios. Often, the stock is being brought down due to the seasonal effect (lowest valuations by mid-December), an out-of-favor industry, or some other reason that does not significantly impact the fundamentals. Especially if the stock is still growing in revenue and earnings, even if at a slower pace than previous, these can be cheap value plays. Keep up the good work!

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