Do you find yourself drawn to low-priced stocks? These stocks tend to be highly volatile because a minor price change can reflect a greater percentage of the total stock price. While this can mean big losses, it can also lead to big gains.
We know the volatility can be discouraging, but there are ways to manage risk when picking stocks on the low end of the price range.
One approach would be to pick potentially undervalued companies which seem to have more potential upside than upside. There are many ways to do this. For the purposes of this article, we used the Graham formula, a commonly used valuation model.
Benjamin Graham, a former mentor of Warren Buffett and the so-called godfather of value investing, created the Graham number as a calculation for the maximum fair-value price of a stock. It is based on its earnings per share and book value per share, and stocks trading significantly below their Graham number are considered to be potentially undervalued.
The Graham number = square root of (22.5) x (TTM EPS) x (MRQ book value per share)
Business section: Investing ideas
Since the Graham number is a strict valuation, it could provide great opportunities. The list below contains stocks that are trading between $1 and $5 that are undervalued to the Graham formula. Do you think these stocks have significant upside?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Amkor Technology
2. First Busey
3. Cumulus Media
4. Harbinger Group
5. Lattice Semiconductor
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Kelly Haugen does not own shares in the companies mentioned above. EPS and BVPS data sourced from Yahoo! Finance, all other data sourced from Finviz. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.