Buying stocks for the long term is a smart financial move. It allows an investor to benefit from the growth of a business and from the growth of the overall economy over time. There are risks to equity investing — share prices fluctuate both up and down based on the market and company performance — but historically, the stock market has shown a decidedly upward trend.
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In other words, stocks generally outperform other, more conservative asset classes like deposit accounts and government or corporate bonds. For investors who have a sound investment plan and diversify their assets wisely, the stock market can offer a rewarding path to true financial security.
A fundamental principle of stock market investing is to buy low and sell high. The share price of individual stocks, however, does not necessarily reflect value or potential. There are many factors that determine the quality of an equity investment, and things can change quickly. A low share price should not be an investor’s only reason to invest in a company.
Still, investors are attracted to low-priced stocks, particularly those trading at less than $5. Buying low-priced stock allows investors to accumulate a larger number of shares. This adds to an investor’s feeling of accomplishment and contributes greatly to a sense of satisfaction after an investment is made. The potential benefits of owning low-priced stock, however, are more than just psychological.
Many low-priced shares of good companies that are successfully executing a well-thought-out business plan really do offer the possibility of high returns. Stocks trading at lower prices often represent smaller, less well-known companies that have a lot of room to grow. These companies can experience rapid price appreciation when the wider investing public becomes aware of the opportunity they represent. Many low-priced stocks experience rapid, unexpected breakouts, providing substantial profits to the investors who bought in before the rise.
While it’s true that cheap stocks can be very lucrative if the underlying company succeeds, it’s also true that low-priced shares are generally more volatile and carry more risk than higher-priced issues. As you review this list of cheap stocks to buy under $5, please remember investing in this class of stocks requires diligent research and the ability to handle higher risks.
— Sutro Biopharma Inc. (ticker: STRO)
— ChargePoint Holdings Inc. (CHPT)
— Sterling Bancorp Inc. (SBT)
— Allot Ltd. (ALLT)
— Mercurity Fintech Holding Inc. (MFH)
— PetMed Express Inc. (PETS)
— The RealReal Inc. (REAL)
Sutro Biopharma Inc. (STRO)
San Francisco-based STRO is a biotechnology company specializing in immunology and immunotherapy. The company focuses on developing targeted cancer treatments and bringing them to market as soon as possible.
Its proprietary system, XpressCF, is a “cell-free” approach that bioengineers complex molecules that activate a cancer patient’s immune and antibody systems to fight deadly cancers. Specifically, STRO is working on treatments for platinum-resistant ovarian cancer and acute myeloid leukemia, a rare blood cancer targeting young people.
All of the company’s treatments are in various clinical trial stages, meaning they are being tested on patients under controlled circumstances. The company has several drugs in the pipeline; if one or more receive FDA approval, the results for this low-priced stock could be dramatic.
Piper Sandler rates the stock “overweight.” H.C. Wainwright has a “buy” rating on the company, while JPM Securities rates it “outperform.”
ChargePoint Holdings Inc. (CHPT)
CHPT is not an electric vehicle (EV) auto maker, but it is a direct play on the ongoing EV boom. CHPT leads the EV charging industry with a market cap of $483 million. It operates a global network of conveniently located charging stations along highways, in parking lots, at rest areas and at workplaces. The company also offers residential charging solutions individuals can have installed at their homes.
CHPT designs and deploys both the hardware — the physical charging stations — and the software for its network. The company earns revenue from the sale, installation, maintenance and operation of its charging stations.
CHPT is a low-priced stock suitable for aggressive investors. As worldwide demand for EVs expands, CHPT stands to benefit.
Sterling Bancorp Inc. (SBT)
SBT is the parent company of Sterling Bank & Trust, F.S.B. It operates as a bank holding company with an online presence and an extensive branch office network in Michigan, California and New York.
SBT is a small bank with significant potential for expansion over time. It has a market cap of $249 million. SBT, of course, offers deposit accounts, such as checking, money market, savings and certificates of deposit, but its main focus is on residential and commercial real estate mortgages, and commercial and industrial business loans.
The long-term investment rationale behind SBT lies in the company’s commitment to prudent geographic expansion and improved financial performance. While its loan portfolio has been overconcentrated in residential loans, management plans to diversify revenue and earnings with a renewed push for commercial loans.
In light of this plan, Piper Sandler upgraded the stock from “neutral” to “overweight” on March 17.
[READ: 6 of the Best Companies to Invest in for 2025]
Allot Ltd. (ALLT)
ALLT, based in Hod HaSharon, Israel, is a high-tech digital security company with a market cap of $141 million. It designs and sells advanced network security systems for individuals, businesses, municipalities, e-commerce firms and mobile phone providers.
Its flagship products include Allot NetworkSecure, Allot HomeSecure and Allot BusinessSecure, but it will customize tailored solutions for individual customer needs. The company combines constant network monitoring with computerized analysis to detect risks and mitigate damage from cyber attacks.
ALLT leverages AI to enhance security and improve customer well-being at home, work and online.
Mercurity Fintech Holding Inc. (MFH)
Blockchain and cryptocurrency are fast-growing industries. MFH, a small-cap stock with a market cap of about $213 million, operates in the financial sector, focusing specifically on blockchain and crypto consulting.
The company advises clients and provides platforms and solutions for the use, distribution and storage of digital assets. When industrial and retail businesses express an interest in blockchain and cryptocurrency, MFH helps design and implement payment and banking systems that fit their specific needs.
MFH believes in the long-term benefits of decentralized money. For aggressive investors, it may be an attractive opportunity.
PetMed Express Inc. (PETS)
Pet ownership in the U.S. has surged since the COVID-19 pandemic. More people are working from home and they are better able to care for their animals. As a result, the pet medication segment of the pharmaceutical industry has grown into a $15 billion industry, and it is projected to top $20 billion in the near future.
Through its brand, 1-800-PetMeds, PETS offers pet medications and health products to U.S. pet owners. This $92 million small-cap company operates as a pharmacy and convenience store without brick-and-mortar locations. Prescriptions are processed either online or over the phone.
PETS faces stiff competition from Amazon.com Inc. (AMZN) and Chewy Inc. (CHWY) and has struggled to find its footing. While it remains a somewhat risky stock, the defensive nature of the pet care industry provides some stability and much opportunity.
The RealReal Inc. (REAL)
REAL made a splash on Wall Street when it went public in 2019. The company operates as an online marketplace and consignment shop for high-end luxury goods in the U.S., offering designer-label fashion, accessories, jewelry, watches, shoes and more.
This $450 million stock has been volatile. Revenue and earnings are cyclical due to shifting trends in designer goods and to broader economic conditions. Increased competition and high customer acquisition costs have also impacted the company’s financial performance.
Still, some analysts remain optimistic. Two out of the six mainstream analysts who follow the stock rate it the equivalent of a “buy,” while the others have it as the equivalent of a “hold.” REAL’s superior technology and market dominance in authenticating gently used luxury goods make it a compelling investment opportunity. For example, Northland Capital Markets and Wedbush both rate the stock “outperform,” and Wells Fargo maintains an “equal weight” rating on the stock.
The most compelling reason to buy and hold REAL is its superior technology and market dominance. It has robust, high tech systems that verify the authenticity of items they take in for sale and, despite increasing competition, it is still the e-commerce leader in gently used luxury goods.
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7 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 11/19/24: This story was previously published at an earlier date and has been updated with new information.
