Just because a stock costs little doesn’t mean it has to be cheap. Some companies deliberately issue the largest possible number of shares. The advantage: With shares under $ 5 in 2021, small investors can spread their risk very well.
Experts recommend investors to diversify their capital broadly when investing money in the stock market. In this way, investors can better distribute the risk and do not run the risk of losing everything at once if a company, industry or region is not doing so well economically. “Broadly diversified, never regretted!” – that is the relevant stock exchange rule. The aim is therefore to distribute the fixed assets as possible across different asset classes, industries and countries. But this is not so easy when the financial possibilities are limited.
If the budget available for the system is only around 1,000 dollars, then you can only buy three Adidas shares, for example, since one Adidas share costs more than 300 dollars. One possible solution: You concentrate on stocks under 5 dollars. In this way, many different stocks can be bought even with a small budget. A diversified portfolio of securities is then in your own custody account. It is therefore worth taking a closer look at stocks below 5 dollars in 2021 as well.
Why are there stocks under 5 dollars at all?
The fact that a share costs less than 5 dollars does not automatically mean that it is “cheap”. Rather, whether a share is cheap or expensive is generally measured by how the price is in relation to profit. The rule of thumb is: If the price-earnings ratio (P / E) is below ten, a share is considered cheap, and if the P / E ratio is above 30, it is expensive. However, the values can vary greatly from industry to industry.
There are several factors that affect the price of a stock. For example, companies determine the number of shares offered for sale when they go public. The higher the denomination of the share capital, the lower the purchase price of the individual share. However, the denomination does not change the value of the share or the company. Investors should take a closer look, however, if the share falls below the mark of 5 dollars as a result of a corporate crisis.
As with all securities, the following applies to shares under 5 dollars: inform yourself well before buying! Is the low price the result of a price loss that can be attributed to poor corporate governance or does the industry in which the company operates have little growth potential? Then there is no future price increase that would justify an investment.
How do I find the right stocks under 5 dollars?
In order to avoid unnecessary costs through frequent buying and selling of securities, every investor should define clear evaluation criteria as the basis for his selection. For stocks under 5 euros, there are essentially two stock-picking strategies that come into play: value investing and growth investing. In the first case, the investor focuses on undervalued companies and the qualities they contain. Important key figures are, for example, the price-to-book ratio (P / E) or the price-to-earnings ratio (P / E), which set the price in relation to the book value or profit.
»Xiaomi share: A lot of growth for less than $ 5.
In the second case, in growth investing, on the other hand, the investor looks for companies that have particularly high growth potential, which are often young companies with new business models. Here, investors look at the price-earnings-to-growth ratio (PEG for short) and earnings per share (EPS for short).
In sight: 5 stocks under 5 dollars in 2021
Anyone who invests their money in young companies must be aware that many start-ups hardly make any money in the first few years, but in the majority of cases they make losses. At Tesla, after going public in 2010, it took around nine years for the company to generate profits for the first time in three consecutive quarters. The price has now risen from $ 17 when it went public to more than $ 600.
The worldwide boom in shares prices last year largely bypassed Telefónica Deutschland. The rate fluctuates permanently between two and three euros. However, the low price has a positive impact on the dividend yield. For the past financial year, Telefónica Deutschland is paying investors 18 cents per share, which corresponds to a dividend yield of 7.5 percent. This makes the Telefónica share one of the stocks with the highest dividend yield in Germany in 2021. And the company has already announced: A dividend of 18 cents per share will also form the lower limit for dividends for fiscal years 2021, 2022 and 2023. In the first half of 2021, the O2-branded mobile operator recorded a significant increase in data usage. Customers also use their mobile phones outside of their home WLAN networks to stream videos or music – and book larger data packages. Telefónica Deutschland predicts that this will intensify with the new 5G mobile communications standard.
Xiaomi is a Chinese electronics products manufacturer. The share price rose in the past year parallel to the generally positive stock market development. Nevertheless, the share still costs significantly less than five euros. In Asia in particular, it is customary to issue more shares and make the prices so investor-friendly. What speaks for the company: It is broadly based. In addition to smartphones, Xiaomi produces a wide range of networked everyday devices – such as fitness bands, vacuum robots and flying drones. The company has also had sales partners in Germany since 2019. That seems to be paying off: Europe has emerged as a growth driver for the Chinese company.
Paion is a biopharmaceutical company from Aachen with an additional location in Cambridge. Paion develops and markets drugs for the treatment of cardiovascular and nervous diseases. The approval of an anesthetic for the US market had the stock rise by 27 percent last summer. However, the price jump had not led to a permanently higher price level. The share is currently around two euros – and is waiting for the next positive company news.
The tourism group TUI could benefit from the recovering holiday business after the corona lockdown in the medium to long term. After the price slide below the 5 dollars and to the all-time low of 2.42 euros, most of the negative future scenarios are likely to be priced into the paper. Together with rising travel bookings and future global easing, it stands to reason that the share will also gain momentum again in 2021. In March the price briefly exceeded the 5 dollars, but is currently below 4.50 dollars. In April, TUI issued a convertible bond for refinancing, which the company now intends to increase further. Anyone who invests in TUI shares will probably need more patience than they might originally have thought.
The hotel comparison portal Trivago was also – unsurprisingly – hit hard in the pandemic. Sales had slumped to a quarter, the net loss in 2020 was in the three-digit million range. The price of the Trivago share fell to 1.05 euros. After tough austerity measures and the end of the corona pandemic in view, the price of the company, which was founded in Düsseldorf in 2005, rose continuously for a few months. But since March the Trivago share has been available again for significantly less than 5 euros. The same applies here: Investors need patience. At some point the travel industry will recover and business will pick up again.
Risks with stocks under 5 dollars
For investors who invest in shares under 5 dollars in 2021, the same rules apply as for all stock pickers: You must expect losses at any time due to a company decision or a market slump. A total loss on the stock exchange cannot be ruled out either. Basically, you should only invest money in the stock market that you can get over losing in an emergency. Stick to decisions – even in times of crisis. Investors often lose more money through the costs and fees associated with hectic buying and selling than through price losses. A closer look at the company, knowledge of your own risk tolerance and a steady hand usually have a positive effect on the total return.