Cheap Stocks: How to Find Them — and How to Decide If They’re Worth It

Thousands of people each month ask Google where to find "cheap stocks."

As someone who's trying to answer that question in this article, here's the challenge: "cheap" isn't exactly a technical term in the investing world. In fact, I can think of three different definitions of a "cheap stock."

• Low-priced shares from established companies (beginner-friendly)

• Bargain stocks (value investing)

• Small-cap stocks (higher risk)

Below, I'm looking at all three varieties of "cheap stock," the top performers in each category and their pros and cons.

Established companies with cheap shares

Maybe you're a beginner investor with only a few dollars to invest in stocks. In that case, you might be looking for stocks that have low share prices, but from companies that are still somewhat established. As we'll discuss below, this isn't the only way to get into the stock market with just a few dollars, or even the best way, but it's an option for those who want to try their hand at individual stock trading.

The following list shows stocks listed in the S&P 500, Dow Jones Industrial Average (Dow), Nasdaq or Russell 2000 indexes that have mid-sized market caps of at least $2 billion (to exclude small, volatile companies) and whose shares are priced between $5 and $10. They are ranked by year-to-date performance — in other words, by which stocks have seen the biggest jumps in the last year.

But as I mentioned earlier, beginners who only have, say, $20 or $30 to invest need not limit themselves to low-priced stocks like these. Many (but not all) brokers we review offer fractional shares (that is, they allow investors to buy less than one full share of a company or ETF).

With a fractional share broker, you can build a more diversified portfolio — for example, an S&P 500 ETF and a bond ETF — with just a few dollars.

A few of the popular brokers — Ally, Merrill Edge and TradeStation — do not offer fractional shares. If you invest through one of those brokers, and you're starting out with just a few bucks, then you may need to invest in low-priced stocks like the ones above. Or you'll need to switch brokers.

If you need to do that, our roundup of the best brokers for fractional shares is a good place to start.

Bargain stocks

"Cheap stocks" could also mean "undervalued" stocks — that is, stocks whose share prices are low relative to their profitability, property values or dividends. Here's a list of some of the best bargain stocks in the S&P 500 index:

Buying and holding undervalued stocks is a time-tested investing strategy. It's how many investing titans, such as Warren Buffett, made their fortunes. But it takes patience.

To learn more about the valuation metrics we used to assemble this list — or how to find bargain stocks yourself — check out our page on undervalued stocks.

Micro-cap stocks

We talked above about established companies with low-priced shares. But another variety of "cheap stocks" (in the literal sense of low-priced shares) is micro-cap stocks, also known as "penny stocks."

These companies don't just have cheap shares, they have small market capitalizations (hence "micro-cap.") The companies themselves are not well-established and often aren't worth very much, which can make their share prices vulnerable to big swings.

Here's a list of some of the best-performing micro-cap stocks over the last month:

It's worth noting that micro-cap stocks are extremely risky — they're better thought of as speculative gambles rather than long-term investments. See our penny stocks article to learn more about the risks.

If you do want to gamble on penny stocks, you'll need a brokerage account that allows it; some brokers restrict access to penny stocks due to their general sketchiness.

If you understand the risks, and you still want to try your hand at penny stock trading, our roundup of the best brokers for penny stocks can be a good place to find the right tools for the job.

How to find cheap stocks

Investing in individual stocks requires a lot of work, and finding candidates is just the start. You’ll also need to:

• Understand the various types of stocks.

• Investigate the company and its management.

• Research the industry.

• Evaluate the financials, such as the balance sheet and income statement.

• Follow the company’s quarterly reports.

That’s just the minimum that you need to do. So if this isn’t how you want to spend your evenings and weekends, consider buying an index fund instead. Index funds invest in lots of companies at once, making it so you don't have to know the exact details of every company.

However, if you want to make trading cheap stocks a hobby, you'll probably want to get acquainted with a stock screener. Check out our overview of free stock screeners to learn more.