Enhance Stock Market Returns With Higher-Priced Stocks; Cheap Stocks Are Cheap For A Reason

A large number of stock market winners share many common traits, including a new product or service that’s driving big earnings and sales growth. Another common bond is that they tend to sell at higher share prices.


Ask the average investor if they’d rather own 10 shares of a $1,000 stock or 10,000 shares of a $1 stock, and the answer will almost always be the latter. It just sounds good to own 10,000 shares of a stock. But the truth is, it’s better to own higher-priced top stocks in the stock market, especially those that carry top Composite Ratings from IBD.

Retail investors and their growing influence in the market have been in the spotlight lately. But institutional investors are still the dominant players. And big investors like mutual funds, banks and insurance companies generally focus their attention on higher-priced stocks. That’s because they tend to be more liquid and higher-quality than lower-priced names. Many low-priced stocks are cheap for a reason, usually because of declining earnings and sales and shrinking market share.

IBD 50 Stock Market Leaders

The number of top stocks priced over 100 in the IBD 50 are plentiful. On Wednesday, 23 of the 50 stocks in the index were priced above 100.

Other IBD screens, like Long-Term Leaders and the Big Cap 20, have no shortage of high-priced stocks.

Stout gains for the stock market in 2020 and earlier in 2021 has a lot to do it, plus the fact that fewer companies are splitting their stock these days. Besides Tesla (TSLA) and Apple (AAPL), stock splits were few and far between in 2020.

Companies used to split their stock regularly. The thinking was that a lower share price would make the stock more attractive to a larger pool of investors. But stock splits are less common these days, partly due to the emergence of micro-investing apps like Robinhood, which popularized fractional trading.

IBD 50 leader ServiceNow (NOW) looked like an expensive stock when it cleared a cup base in January 2020 with a buy point at 363.05. The stock climbed nearly 20% before is started forming a cup base. Shares surged 56% from the 363.05 buy point.

Meanwhile, the security software group is filled with institutional-quality stocks priced above 100. Palo Alto Networks (PANW) closed at 441.87 Aug. 24 after gapping above its 50-day moving average. Two other stocks in the group — Zscaler (ZS) and CrowdStrike (CRWD) — are trading above 250 a share.

This article was originally published Feb. 5, 2020, and has been updated. Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.


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