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.'"
But some investors gravitate to cheap stocks because they see these companies as creating opportunities for larger returns.
Additionally, many folks simply don't have the cash to buy some of the priciest stocks on Wall Street, such as online travel company Booking Holdings (BKNG) which trades for roughly $5,000 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. One choice investors have is to buy fractional shares of a stock whose price exceeds what you have available to invest.
Another 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 such as those found in the best stocks to buy from those more likely to result in volatility or dubious performance. So when I compiled this list of top stocks 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 companies with potential for continued growth but also established trading volume and market values. Specifically, this list of cheap stocks is limited to companies with more than 1 million shares in average daily trading volume, meaning there's ample liquidity in the name. We also limited our search to stocks with a market value of more than $300 million, pointing to more established operations.
The best cheap stocks to buy
With that in mind, here are five of the best cheap stocks to buy that are priced at or 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 November 15.
Amylyx Pharmaceuticals
- Sector: Healthcare
- Market value: $326.3 million
- Average daily trading volume: 1.4 million
Development-stage pharmaceutical companies can be risky because they burn cash as they race to bring a new treatment to market. Amylyx Pharmaceuticals (AMLX, $4.76) is focused specifically on rare disorders. The company recently reported favorable Phase 2 clinical trial results for its new pipeline drug, AMX0035, targeting Wolfram Syndrome.
It was admittedly a small group of participants, so there's a lot of work left to do before AMLX wins formal approval and the drug can come to market. But with shares of the healthcare stock up roughly 150% in the last three months, Wall Street clearly likes what it sees.
Not only does Amylyx provide the potential for significant long-term sales and big margins if and when AMX0035 is approved, there's always the chance that Big Pharma will snap up the biotech in an acquisition. And this could result in instant profits for shareholders. The M&A potential is another reason to take a closer look at this cheap stock.
LifeStance Health Group
- Sector: Healthcare
- Market value: $2.7 billion
- Average daily trading volume: 1.5 million
LifeStance Health Group (LFST, $7.14) is a healthcare company of a very different flavor, providing outpatient mental health services to children, adults and elderly patients across the U.S. through a network of nearly 600 different clinics. It treats a range of conditions including anxiety, depression, eating disorders and post-traumatic stress disorder.
The stigma around mental health issues has lifted a bit in recent years, and thankfully millions of Americans are now getting the help they need. Unfortunately, the trends of many mental health issues aren't looking particularly favorable and that means LifeStance provides a critical and growing role in the healthcare landscape. Indeed, the company recently reported strong third-quarter results and upbeat fourth-quarter guidance.
"Solid quarterly performance for LifeStance continues to be the narrative, as the strategic initiatives put in place by the new management team continue to bear fruit," wrote William Blair analyst Ryan Daniels (Outperform, the equivalent of Buy) in a November 7 note.
Daniels believes the "'clicks-and-mortar' operating model at LifeStance – which offers patients both virtual and in-person behavioral healthcare services – is unique and remains well positioned for long-term organic growth in the high-demand behavioral healthcare space."
Overall, analysts expect revenue to rise by nearly 17% this fiscal year, followed by 13% growth in 2025 – signaling a strong uptrend in the company's growth prospects.
The small-cap stock sold off sharply in May after the company announced a secondary public offering that priced shares at $6.25 apiece – a deep discount to where they were trading at that time.
LFST has recovered from its early summer lows, but is still trading below its 52-week highs. In other words, investors can still scoop up one of Wall Street's best cheap stocks at a discount.
New Gold
- Sector: Materials
- Market value: $2.0 billion
- Average daily trading volume: 9.8 million
Some small stocks are difficult to unpack, but New Gold (NGD, $2.53) does exactly what you would expect. It's a gold mining company that develops mineral properties in Canada and brings the precious metal to market. It also mines silver and copper deposits.
According to its most recent annual filing, NGD boasted nearly 3.3 million metric tonnes of gold reserves and 8.2 million metric tonnes of silver reserves. And considering that gold prices have outperformed the broader S&P 500 Index so far this year, that's a great business to be in right now.
There's obviously risk that the gold stock could tumble if commodity prices soften up as this is the core of its business. However, with lingering geopolitical uncertainty and continued fears of inflation and a shaky global economy, chances are gold will remain a store of value for some time – a trend that will benefit NGD shareholders in the coming year.
Peloton Interactive
- Sector: Consumer discretionary
- Market value: $3.0 billion
- Average daily trading volume: 20.4 million
Peloton Interactive (PTON, $7.75) has seen plenty of fireworks over the last few years. After peaking at roughly $160 per share at the beginning of 2020, the growth trend of this home fitness icon changed course in a big way. After recording a nearly $1 billion loss in 2022, the company has struggled to get on track. The most recent hurdle came in January 2024 when yet another ugly earnings report sent the consumer discretionary stock tumbling more than 20% in a single session.
However, recent indicators suggest the worst may be over for this cheap stock. Shares have nearly more than doubled since August when the company reported its first sales growth in more than nine quarters. Wall Street also welcomed news in late October that former Ford Motor (F) executive Peter Stern will become Peloton's new CEO, effective January 1, 2025.
BofA Securities analyst Curtis Nagle thinks Stern "is well suited to reinvigorate subscriber growth given subscription, hardware & health tech experience." Nagle recently double-upgraded PTON to Buy from Underperform (the equivalent of Sell) and hiked his price target to $9 from $3.72 amid expectations for "substantial earnings upside on continued expense efficiencies."
There is certainly plenty of risk for Peloton investors. But the company is making strides, including a deal with retail giant Costco Wholesale (COST) to sell Peloton gear in its locations this holiday season. And that gives investors even more reason to believe this cheap stock has turned a corner.
Payoneer Global
- Sector: Financials
- Market value: $3.7 billion
- Average daily trading volume: 2.8 million
Financial technology company Payoneer Global (PAYO, $10.37) specializes in global, multi-currency accounts that facilitate cross-border payments for small and medium-sized businesses. While its market value is modest and its customer base includes smaller merchants, its footprint is wide as it spans roughly 190 countries and territories worldwide. It's also no upstart, founded back in 2005 and encompassing nearly two decades of specialization in payment processing.
In an increasingly connected and cashless world, PAYO provides a service that is in demand more than ever. The fintech is comfortably profitable and seeing consistent growth, with analysts anticipating double-digit revenue expansion this fiscal year and high-single-digit growth in 2025.
In November, the financial stock soared by roughly 10% in a single session after the company reported record quarterly volume, including almost 60% business-to-business (B2B) growth. That's a great sign that PAYO is riding strong momentum into the new year.
Shares are now trading right at the $10 price point for this list of the best cheap stocks to buy. If it continues to head higher from here, we'll replace it with a lower-priced pick.
