Successful investing is tough. What stocks will boom in 2021, and what are the best growth stocks to buy now? Should you be looking for cheap stocks to invest in or only invest in established companies with a previous history of successful growth.
Are cheap stocks any good, or can you end up losing your money?
With so many different vehicles for investment, what financial instrument do you choose for investing? Is buying stocks the best option? Is it best to diversify your portfolio by buying stocks from companies across the globe?
Retail investors mostly lose money. They may get a quick tip-off from a friend and hope the cheap ICO may turn out to be the next Amazon. But, if you're relying on luck for investments, you are doomed to failure.
The primary issue for most failed investors is a lack of research. Digging deep into company history is not a five-minute job. But if you are in too much of a hurry to buy stocks, you may overlook the fundamentals.
Research is essential so you can choose the best stocks for investing in 2021. Today's guide offers a five-step process for researching the best stocks to buy for 2021 and beyond.
This article outlines the 5 typical mistakes that investors make. You will learn how to avoid investing errors and find the best cheap stocks to buy for beginners.
Before we look at the best stocks to invest in, we will explore the essentials for finding the best stocks to buy in 2021.
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Contents
- How to Research the stocks you Want to Buy
- The 5 Mistakes Investors Make
- The Best Stocks To Invest In for Beginners in 2021
- The Best Cheap Stocks to Buy for Beginners
- Recap of What are the Best Stocks to Invest in?
- FAQs
How to Research the stocks you Want to Buy
1. What Does the Stock do?
Buying something you don't understand is one of the most common mistakes for investors. You may believe it isn't necessary to learn about a company. You just want to buy the stocks and make a profit. But, as an investor, it's common sense to understand how a company makes money and profits?
- Is the company international?
- How long have they been in business?
- Has the company expanded?
- Are they showing growth?
- What service does the company offer?
- Is the company a leader in its field?
- What is the company culture?
- Has there been recent media coverage?
- Does the CEO have intensive experience overseeing a company?
Most of this information is available on a company website or do a Google search. Think of as many relevant questions as you can.
2. What is the Price-to-Earnings (P/E) Ratio?
The P/E ratio measures the company's share price relative to the per-share earnings. Calculating the price per earnings (P/E) ratio is easy. You simply divide the company's market value per share by the earnings per share.
When you have calculated the P/E ratio, you can compare it with similar companies to assess how the company shapes up with others in the same field.
If your chosen company has a rating of 20, this equates to investors willing to pay $20 for $1 earnings because they anticipate growth.
To find the P/E rating, you can compare the current market price with the last four quarters earnings. Many stock exchanges share the P/E rating, so you don't have to calculate it yourself.
3. Does the Company Pay Dividends?
A stock that pays dividends is preferable to one that doesn't. Investing in stocks with high dividend payouts is a good move as an investor.
As an investor, you receive dividends even if the price of the stocks falls. Companies usually pay quarterly dividends in cash, and the board of directors decides the amount. Some companies prefer to payout with stock shares.
If you have a portfolio of stocks with dividend payouts, you receive a steady income for no extra work.
To find a company paying dividends look for larger companies with a track record of predictable profits. Start-up companies may offer dividends, but the amount is likely to be less than the major company dividend payouts.
4. Beta
What is Beta?
The simple explanation is that Beta is a measure of volatility that shows the ups and downs of the company stock over five years. The Beta value usually is on the same page as the P/E ratio.
The S&P 500 is the foundation for the measure of Beta. If the company value is more or less than the S&P, the company has a high Beta measurement.
You can make a lot of money from stocks with high Beta. But equally, you could lose a lot of money. Volatility is great for price movement but not if it's consistently unstable.
If you opt for a company with a low Beta, that means it is not reactive to the S&P 500, so prices are more stable, which subsequently means lower risk.
5. The Chart
Novice investors freak out at the thought of checking charts. But, with a bit of practice, it isn't complicated to read price charts. The charts available are:
- Candlestick charts
- Bar charts
- Line charts
Which chart you use is pure choice. Some investors find line charts impossible to read as it's one continuous line on the chart, looking somewhat like a Himalayan mountain top. Candlestick charts are the most popular because it's easy to observe price direction with green candles for bullish price action and red candles for bearish price action.
Ideally, look for a stock in a trending pattern that shows higher highs and higher lows for a buy and lower highs and lower lows for a sell.
It takes time to adjust to what looks like fast-moving, flashing charts, but with commitment, the ability to read price charts can help you decide the best price to buy a stock.
Focus on the daily chart or the 4-hourly chart as this gives a clearer picture of price direction.
The five key things to research when buying stocks will save you time and money. At first, it may seem daunting to check companies before buying stocks. But if you want to buy the best stocks right now, your time is well spent.
Research is the defining factor for the difference between a successful investor and one who loses money.
You decide.
The 5 Mistakes Investors Make
1. Wanting Perfect Timing
Financial markets are unpredictable. Monitoring stocks for the best price is time-consuming and exhausting. There are so many variables that you cannot factor into your precision timing. A sudden tweet or economic news can send a price spiralling, and you missed your opportunity.
If you spend more than two hours staring at price charts, your brain turns to mush. You lose focus and concentration, the two major requirements for successful investing.
If you find yourself constantly waiting for the perfect moment (and never finding it), you might be better off investing in an index-tracking fund. You invest a set amount each month, and you could find your results are better than trying to find individual stocks to buy.
Read Also: 7 Tips On When To Buy A Stock And When To Sell A Stock
2. Failure to Understand what you are Buying
Yes, we covered this subject in the company research section. But, it's so crucial, we think it's helpful to mention it again.
Love him, or hate him, Warren Buffet is a savvy investor. His advice to investors is, "Never invest in a business you cannot understand."
You don't buy a stock because they have a unicorn on their logo, or their CEO has the same name as your favourite granny. Before you buy, understand what you are buying.
Your life may be a bit easier if you buy shares in a company you already understand, such as Amazon and Google. You don't have to research these world leaders to know they have endless growth potential.
3. Don't Make Emotional Decisions
You may have heard of FOMO (Fear of missing out) because it's one of the core reasons why people make silly, irrational decisions when buying stocks. The best traders and investors have zero emotions about their investments. They don't tie all their hopes up in a stock value increasing, and they do not fall apart if the stock devalues.
If you are a new investor, you will encounter challenging emotions when buying stocks with real money.
Make fact-based decisions. Do the research, step back and remain detached about your choices. Dig deep into your research until you know 100% that you are armed with the facts and can rationally decide to invest in a company.
4. Failure to Know When to Cut Your Losses
A classic situation for novice investors is the following scenario:
Your investment has made significant gains. In your mind, you are sitting on all that lovely profit. You feel pleased you chose the right stocks, a bit smug maybe.
Then the price of the stock drops a little. Not a problem. You are still in profit.
Over a period, the price continues to drop as you watch helplessly as your profits fall away. Suddenly, the price of the stock is at breakeven. You cannot stand any more pressure, so you exit – with zero profit.
You have to know when to quit an investment. Set a target and stick to it. It is one of the hardest aspects to master in investing.
5. Failure to Diversify
Somehow, you ended up with half a dozen stocks before you realise they are all inadvertently in the same field. If this genre of the industry takes a punch, your entire portfolio is affected.
It's not just a case of buying a bunch of different stocks. You have to make sure there is zero correlation between the companies. Are the assets similar? If so, that's not good.
Spread your risk across different assets - Double-checking for anything that might align the companies.
6. Not Using a Stop-loss
Not having a stop-loss is like going out for a drive in your car, knowing full well you have no brakes. You come to the top of a hill and have zero control as the vehicle careers down the hill.
You know there's going to be a large crash at the bottom. But, without a stop loss, there is no bottom. Your investment can plummet to nothing, and unless you close it manually (Not so easy to do with stocks), you're in big trouble.
Why have a stop loss for stocks?
Nobody likes losing. When you invest in a company, you hope for a good outcome. But successful investment is not founded on hope. You will occasionally lose, and that's OK as long as you have diversified your portfolio. A minor loss is manageable.
Before you invest in a company, figure out your stop-loss levels. How much are you prepared to lose? Focus on the loss potential before considering the profit potential.
Check Out: Open Profit and Loss – Explained
The Best Stocks To Invest In for Beginners in 2021
The best stocks are unlikely to be the cheapest, but they could turn out to be profitable if you have done your homework.
The best stocks to buy now are the ones where the companies are committed to growth and innovation.
You can research the cheap stocks for investing in 2021 but do still explore the company details.
The eight stocks below are well-known household names, starting with the highest-priced stocks first.
Understandably, some of these stocks may be out of your price range. But, study them anyway to find out how stocks perform over time for major corporations.
Following this section, you can find out about the best cheap stocks for beginners, all under $10.00.
Unsurprisingly, Amazon is a popular, top-performing stock.
You can track the past performance of these stocks from an online search.
- Amazon (AMZN)
- Alphabet (GOOG)
- Costco (COST)
- Mastercard (MA)
- Facebook (FB)
- Microsoft (MSFT)
- Disney (DIS)
- Apple (NAAPL)
Don't Miss: 10 Tech Companies To Invest In
The Best Cheap Stocks to Buy for Beginners
As a beginner to investing, perhaps you cannot afford to buy Amazon shares at $3.500 or even Apple shares at $146.00. No problem. If you want cheap shares to invest in, here are a few stocks with investment potential.
Do your research on these stocks.
10 cheap stocks under $10.00
- Aurora Cannabis (ACB) - one of the four largest legal Canadian cannabis producers - $7.29
- Enel Américas S.A. (ENIA) – a conglomerate of South American electric energy companies - $7.00
- Kamada Ltd. (KMDA) – speciality plasma-derived pharmaceuticals, and is leading in research and development of alpha-1 antitrypsin and specific immunoglobulins - $5.41
- Telefónica, S.A. (TEF) – A Spanish telecommunications provider - $4.29
- Mitsubishi UFJ Financial Group (MUFG) - Japan's largest financial group - $5.26
- Telecom Italia (TIIAY) - Telecom Italia is Italian wireless and fixed-line telecom provider - $4.36
- Aegon (AEG) - an insurance company that operates in the Netherlands, the U.K. and the U.S - $4.01
- Frank's International (FI) - oil and gas services company specialising in tubular services - $2.54
- Equitrans Midstream Corp. (ETRN) - a U.S. natural gas transmission and storage company
- Lloyds Banking Group plc (LYG) – Retail/Commercial Bank - $2.37
The diversity of the 10 cheap stocks to buy
- Cannabis producer - Canada
- Electrical company - South America
- Telecommunications provider - Spain
- Telecom provider - Italy
- Pharmaceutical company - Israel
- Insurance company - Netherlands
- Oil and gas services – United Kingdom
- Financial group - Japan
- Gas transmission and storage company – United States
- Retail and Commercial Bank – United Kingdom
If you were researching cheap stocks to buy in 2021 and selected the above list, remember what you learned earlier in the section about diversity?
In the list, there are two gas companies, two telecom providers and two financial companies. To diversify your portfolio, you would select one of the companies from each for investment in cheap shares. If, for instance, the telecoms industry took a hit, both of the telecom stocks would be affected.
Hopefully, you fully understand the power of diversifying your portfolio. These stocks could be the best stocks to buy right now if you are looking for cheap stocks to invest in for 2021.
Recap of What are the Best Stocks to Invest in?
Before buying stocks, always thoroughly research the company. You want to discover what stocks will boom in 2021, so do the background checks to find the best stocks to add to your portfolio.
Find out what the company does and how their performance compares to similar companies. Calculate the P/E ratio, which is the current price of the share relative to the per-share earnings.
Stocks with dividends are the preferred option as you will still receive dividends even if the stock price falls.
Check the Beta of the company to assess volatility.
Learn technical analysis so you can read price charts.
Avoid the 5 mistakes most investor beginners make:
1. Wanting Perfect Timing
2. Failure to Understand what you are Buying
3. Don't Make Emotional Decisions
4. Failure to Know When to Cut Your Losses
5. Failure to Diversify
6. Not Using a Stop-loss
Though some of the best stocks for investment are expensive, investing with limited funds may restrict your potential for buying enough stocks to generate a good return. Blue-chip companies with household names are almost always going to have high stock prices.
If you are just starting as an investor, you can buy cheap stocks under $10 with growth potential. But don't buy stocks because they are reasonably priced, not before running all the checks we outlined in this article.
Research the company, and you could end up grabbing bargain stocks that will reap the rewards in the future.
You are investing in growth potential, so anticipate holding your stock for several years. That way, you can maximise gains and minimise the exchange commission for your stocks.
Continuously diversify your portfolio and avoid buying stocks for companies with correlation.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in financial instruments may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Trading Education.
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Read Also:
What To Consider Before Investing in Blue-Chip Shares
7 Best Cheap Stocks to Buy Now Under $5
Key Benefits of Investing In Stocks
9 Small-Cap Stocks With Growth Potential
FAQs
How much money do I need to invest in stocks?
How much money you need for stock investing depends on your long-term goals.
You can get started with stock investing for $500, which is enough to invest in cheap stocks to give you a good return.
When buying stocks, there's not much point in buying one or two shares for each company. It's more beneficial for long-term investment to buy 50-100 shares per company. But stick to 5% of your portfolio for each company.
Bear in mind, even a $2.00 share eats up $200 if you buy 100. Outline a plan before you start buying stocks. You may benefit from paper-trading for a few months with a stock simulator. Use a stock screener and set your filters, and chart your progress over time.
What's the 3-day rule when buying stocks?
The stock market is sensitive to negative news. Media coverage influences share prices. So, occasionally, the stock market may have a temporary nosedive.
Successful investors adhere to the three-day rule as a factor in their investing strategies.
The three-day rule is that, after negative news, you wait for three days before buying a stock.
It may seem counterintuitive because you imagine that the price may be more favourable for stock purchases immediately following the news. But, the rule has served many investors well, so start paper trading stocks you are interested in, and see how the 3-day rule affects the price over the three days.
Can you Buy a Stock and Sell it the Next Day?
As a retail investor (that's you), you are allowed to buy and sell a stock on the same day no more than four times over five trading days. You can overcome the trading rule by buying your stock near the close of the day and selling it the following day.
However, buying and selling stock in 24 hours is day trading, not investing. Remember that trading rules on stock exchanges require a $25k balance at all times for day traders. So decide if you want to day trade stocks or invest in stocks.
Should I Add Crypto to my Portfolio?
Many investors add some crypto to their portfolios, but crypto prices are highly volatile. If you invest in cryptos, commit to no more than 5% of your portfolio.