Cheap Stock Investment Guide: How to Discover Undervalued Growth Stocks in 2025

Why Low-Priced Stocks Are Worth Paying Attention To

Many investors are skeptical of cheap stocks, believing that low share prices imply poor quality. But that’s not always the case. Low-priced stocks refer to stocks with relatively low per-share prices in the securities market. While these stocks often have lower trading costs, they can include high-quality companies with genuine growth potential. The key is how to identify truly valuable investment targets among numerous cheap stocks.

What Kind of Cheap Stocks Are Worth Investing In

Not all low-priced stocks are worth deploying capital into. Investors should focus on cheap stocks that meet the following criteria:

Valuation at a Discount: Stocks with a PE ratio below 10-15 and a PB ratio less than 1 generally have attractive valuations. However, low valuation must be accompanied by solid fundamentals.

Sustainable Profitability: Prioritize companies with positive EPS for 3-5 consecutive years, showing a year-over-year profit growth trend. If the company is not yet profitable, observe whether revenue growth is positive and whether income is increasing annually.

Industry Outlook and Dividends: If the cheap stock is in a booming industry (such as AI, new energy, etc.), the potential for appreciation is relatively higher. For traditional industries, focus on whether dividends are stable and whether the long-term dividend yield is attractive.

How to Screen for Cheap Stocks

Tool-Assisted Screening

Using stock selection platforms like Finviz or Investing, you can quickly perform preliminary screening. For example, on Finviz, select “Price Under 5” (stock price below $5) and “PE<15” to get initial results. You can further refine by adding criteria such as EPS positive for 5 consecutive years or revenue growth greater than 0 based on personal preferences.

Fundamental Analysis Method

In addition to relying on screening tools, investors should also explore investment opportunities in cheap stocks through the following methods:

Focus on Economic Cycles and Industry Trends: Look for countries or sectors in an upward macroeconomic cycle, and search for low-priced potential stocks within them. For example, some South American countries are experiencing economic recovery, which may benefit related companies’ performance.

Early Movers in Emerging Sectors: Emerging industries during expansion phases often harbor high-growth opportunities. Companies solving new problems, although their stock prices may not yet be fully recognized by the market, have considerable growth potential.

Performance Catalysts: Pay attention to companies with potential turning points, such as biopharmaceutical firms awaiting approval for products or companies about to complete major restructuring. Early positioning may lead to substantial gains.

Selected Cheap Stocks for 2025

US Stock Cheap Stock Picks (below $5 or within $10)

(As of October 2024)

Hong Kong Stock Cheap Stock Picks (below HKD 15)

In-Depth Analysis of High-Potential Cheap Stocks

Mizuho Financial Group (MFG): As Japan’s third-largest financial institution, the group recently reported an 18% quarterly profit growth, with net profit reaching 289 billion yen. With the Bank of Japan entering a rate hike cycle, widening interest margins will directly benefit bank income. The group maintains an optimistic outlook for FY2025, aiming for record-high profits.

Banco Santander (SAN): In the first half of 2024, net interest income hit a record high of €23.5 billion. The cost-to-income ratio was 41.6%, the best in 15 years, indicating significant efficiency improvements. Institutional investors are optimistic about its earnings prospects.

Brazilian Energy Company (UGP): In Q2 2024, net profit increased by 106% year-over-year, with cumulative net profit up 85%. Amid economic recovery, the company’s liquefied petroleum gas business grew strongly, with an upside target of 80%.

Chilean Power Company (ENIC): Global renewable energy installed capacity reached record growth. As Chile’s largest independent power producer, the company’s hydro and solar energy businesses are expanding rapidly. The geographic advantage of the Atacama Desert supports efficient power generation, and Chile’s economic expansion fuels business growth.

Investment Methods and Strategies for Cheap Stocks

Investment Approaches

Direct Purchase of Individual Stocks: Buying and selling through a brokerage account, US stocks support purchases starting from 1 share, requiring relatively less capital.

Fund or ETF Allocation: If concerned about risks associated with individual stocks, consider ETFs focused on low-priced stocks. These typically hold hundreds or thousands of companies, offering significant diversification and suitable for long-term investors.

Trading Strategy Recommendations

Limit Orders Combined with Periodic Investment: Cheap stocks tend to fluctuate within a certain price range over the long term. Using limit orders allows automatic execution when prices reach target levels, reducing purchase costs. Regularly investing a fixed amount can average out costs and avoid buying at peaks.

Diversify to Reduce Risks: Investing in cheap stocks is essentially small bets on many. Investing in only 1-2 stocks carries high risk. It’s recommended to hold at least 5 cheap stocks to form a small portfolio, increasing the chance of selecting valuable stocks and effectively diversifying individual stock risks. This approach is especially suitable for investors with limited risk tolerance but seeking excess returns.

The key to investing in cheap stocks is not chasing short-term quick gains but rather carefully selecting and patiently holding, to uncover undervalued high-quality companies and achieve long-term steady appreciation.