First things first: Cheap stocks are not necessarily better stocks.
"False promises of quick and painless riches are easier to fall for when an investment can be made with so little money up front," writes Dan Burrows, senior investing writer at Kiplinger.com, in his feature on penny stocks. "An investor might think, 'How risky could it be?'"
The answer, Burrows says, is plenty. "Per the Securities and Exchange Commission: 'Academic studies find that OTC [over-the-counter] stocks tend to be highly illiquid; are frequent targets of alleged market manipulation; generate negative and volatile investment returns on average; and rarely grow into a large company or transition to listing on a stock exchange.'"
That said, some investors simply don't have the cash to buy some of the priciest stocks on Wall Street, such as auto parts chain AutoZone (AZO) or online travel company Booking Holdings (BKNG) that both trade for roughly $3,000 a share at present.
If you only have a few hundred dollars or you want to trade in round lots instead of a single share, then cheap stocks – or at least cheaper stocks – are one way to go.
Why should I buy cheap stocks?
With the latest bull market well underway, many stocks are now trading at much higher prices than they were a year or so ago. While this puts several popular names out of reach for the average retail investor, not all hope is lost. One choice investors have is to buy fractional shares of a stock whose price exceeds what you have available to invest.
Another option is to find high-quality cheap stocks. To be clear, this is referring to share price and not valuation metrics like book value or the current price compared with earnings trends.
Unlike the best value stocks that tend to boast strong balance sheets and a solid commitment to shareholders, cheap stocks often face weak fundamentals. They are also known to be risky and volatile, which understandably makes some folks hesitant to buy them.
Still, plenty of people love cheap stocks for their affordability factor and their ability to reap big gains in a short period of time (though, this also means investors can suffer big losses in a hurry).
If you are interested in cheap stocks, it's vital to do your research beyond just looking at the latest print for prices. You need to take a hard look at risk metrics, recent performance and future outlook in order to invest responsibly.
Our methodology to find the best cheap stocks to buy
I have written extensively about capital markets, Wall Street and investing since 2008. Along the way, I've learned how to separate legitimate investing opportunities from those more likely to result in volatility or dubious performance. So when I compiled this list of best stocks to buy that are priced at or under $10, I focused solely on companies that trade on major exchanges vs over-the-counter "penny stocks."
I also sought out well-established companies instead of small caps trading for only a few hundred million dollars, and each pick is valued at least $1 billion in market value. In addition to the stability this provides, the stocks also have a better chance of analyst coverage than the smallest stocks on Wall Street because of that size rather than fly-by-night corporations that are under the radar.
Lastly, from a valuation perspective, the companies have to be profitable and trade for a reasonable multiple on those profits. Specifically, they are under the average forward price-to-earnings ratio of the S&P 500 index, which is currently about 20.
With that in mind, here are five of the best cheap stocks to buy that are priced under $10 per share. But remember, cheap stocks move quickly, so if you decide to invest in them at all, do so in small amounts that you can afford to lose.
Data is as of May 3.
The best cheap stocks to buy
Alight
- Market value: $5.1 billion
- Forward price-to-earnings (P/E) ratio: 12.8
Alight (ALIT, $9.30) is a software firm focused on cloud-based employer and professional services. The company manages the day-to-day headaches for businesses such as benefit enrollments, payroll, employee training and other elements of office life that many managers consider to be housekeeping.
The company is smaller than some other enterprise software giants out there, with a market value of just $5 billion. This allows the "goldilocks" tech company to be agile, though it's still large enough to have a strong foundation. Indeed, Alight boasts a 98% customer retention rate and 84% of its top line comes from recurring revenue.
And unlike other high-flying momentum names in hotter segments like artificial intelligence (AI) or biotech, Alight is comfortably profitable and trades for a reasonable valuation of about 12.8 times forward earnings.
Amcor
- Market value: $14.5 billion
- Forward P/E ratio: 14.4
Amcor (AMCR, $10.01) is a multinational packaging firm that services customers worldwide with the containers they need. These include milk cartons for dairy products firms, blister packs for pharmaceutical manufacturers, squeeze pouches for baby food, and just about anything else you can think of.
The company's diversified product line makes this a relatively stable business. And the cherry on top: AMCR is one of the best dividend stocks with a healthy yield of 5% at present.
AMCR is reasonably valued vs its future expected profits, too, with a forward P/E ratio of 14.4. It's also the only company on this list that's large and established enough to be in the flagship S&P 500 index and the Russell 2000.
It should be noted that the materials stock is trading right at $10 thanks to an early May earnings-induced rally. We will monitor its share price and remove it from this list of the best cheap stocks to buy if it climbs any higher.
Arcadium Lithium
- Market value: $842.0 million
- Forward P/E ratio: 10.8
Anyone who follows tech trends should know that lithium is the hottest mineral lately thanks to its applications in a host of high-tech areas, from electric vehicles (EVs) to alternative energy storage systems.
Arcadium Lithium (ALTM, $4.68) specializes in lithium, with various properties around the world that produce and process related compounds. There's surely risk here, particularly given recent pressures on EV markets that have some wondering if the future demand of the sector will live up to previous hype. But there's little doubt of the importance of these new technologies, even if the demand growth may be more muted than prior projections.
ALTM made its market debut in January 2024 following the merger of Allkem and Livent, two chemical stocks that were once high-fliers. Shares are currently down about 37% for the year-to-date. But the company is still profitable and is certainly worth a look now that it is more fairly valued at its current price.
Kosmos Energy
- Market value: $2.8 billion
- Forward P/E ratio: 5.9
First things first: As an oil and gas exploration company, Kosmos Energy (KOS, $5.81) is more volatile than the other cheap stocks on this list thanks to its close relationship with energy prices.
That said, the recent uptrend in the energy sector has been good for KOS stock. Analysts are projecting an impressive 18% top-line growth rate this fiscal year and nearly double-digit growth for fiscal 2025.
The challenge, of course, is that KOS could hit a snag if oil prices crater. But with geopolitical unrest in both Gaza and Ukraine that shows little sign of abating, global energy markets could face continued supply risks – which will potentially boost oil prices and Kosmos' profitability in the near term.
And even if oil prices don't skyrocket, the energy stock appears fairly valued at present, trading at just 5.9 times its forward earnings forecast.
Valley National Bancorp
- Market value: $3.9 billion
- Forward P/E ratio: 8.9
It has been a chaotic couple of years for regional banks. In 2023, the failures of Silicon Valley Bank and Signature Bank created upheaval across the industry, while more recently, concern over growing losses in commercial real estate sparked volatility earlier this year in New York Community Bancorp (NYCB).
New Jersey-based lender Valley National Bancorp (VLY, $7.73) has been caught up in some of the bedlam, with shares now down about 30% for the year to date. However, the selloff has VLY trading for less than 9 times forward earnings.
More good news for those seeking out the best cheap stocks to buy: Valley National also pays a generous annual dividend of 44 cents per share, which is only about half of this year's expected profits and yields an attractive 5.7%.
As proof of management's confidence over the long term, Valley National announced a new stock buyback program in February that allows the bank to buy up as many as 25 million shares at currently depressed prices. Investors looking for the best cheap stocks could consider following suit.
