If you ALWAYS lose money on these cheap stocks when you buy them, next time try shorting one when you think its cheap enough to buy, then cover when you'd normally gotten disgusted and taken the loss. Honest, I've done it. Its a good way to break a losing streak.
It's not quite that simple. I've often made money buying popular quality stocks when they are sold off after a poor quarter. A good example is Intel, which I bought during the summer at 17.69 after a poor quarter and it went up to 22 in a few months. What I am more saying is that there are a bunch of stocks whose P/E's are perpetually low, despite the success of the underlying company, simply because major purchasers of equities just don't want to buy them - regardless of the relatively cheap price compared to other stocks of other companies with similar prospects.
I really hate investment advice threads, because unless you paint the WHOLE picture, which no investor in their right mind is going to do, you can only give part of the picture, which can be misleading. That said, a key to stock analysis is understanding sector rotation. There's no way to make money if NO ONE knows about a stock, because the very nature of the stock market is that it only goes up if a lot of people BUY it. How is that going to happen if no one knows of it? You want stocks that are on people's radars... that for whatever reason are not hot today, but are in fact the hottest stocks when their sector gets the attention (they are watched). Every sector has darlings, because they lead, they are the best, but today, their sector is out of favor, or because the economy has caused their profits to drop... like oil and XOM. Like Intel/AMD and computer sales. Like Windows and MSFT. Like chemicals and DOW/CE. Etc etc. You buy the best when everyone else hates them, you will do well. The tendency is to buy the ALREADY hot sectors/stocks, because they are the ones hyped... that's a gamble, because there's no way to know ahead of time if their best is still to come, or behind them... and because they've been hot for so long, they tend to be fairly valued already. I avoid the GOOG, AAPL, etc for that reason... they DO have room to run, but I'm not buying any til they each announced a 4:1 split. Also, I think they're being held back by their pricing... everyone who was in the market in 2000 likely still panics when considering stocks that over $100... how many people remember Qualcomm at $400 (it did split, but the prices are still shattered)? I won't go near another $400 stock in this lifetime, but that's just me. Those prices bring back the nightmares of loss of 90% market value over a few months time. I'd rather woop over a $1 gain on a $30 stock than a $5 gain on a $500 stock. Which is more $$?
Some people say that all fundamental data is expressed in the price movement of a stock. That's alot of info, including things us on the outside might not be privvy to.
There's a couple of problems with that. First, I'm not referring to Warren Buffet-style very long-term investing (probably I should have been more specific that I am referring to a 6-24 month period). Second, I don't think historical (i.e. pre-21st Century) data has very much relevance to current financial conditions. The type of investing is different, there is the global factor now, and there is a huge amount of "rationalizing" going on. By that I mean that people now have access to all sorts of information to rationalize decisions that are essentially emotional. So, no one today thinks their decisions are emotional, which means things are now actually less rational despite the huge amount of data available. PS I'll freely admit that my personal sampling is "anecdotal", rather than scientific. But I post it merely to see if others have encountered the same phenomenon.
I would suggest a good reading of Bill O'Neills books....he explains how and why a stock goes up and another one does not... His research firm has some very interesting data going back 50 years on low price, low quality stocks.... His CANSLIM method of analyzing a stock is applicable to most, if not all, of the "hot" stocks.....and he picked them up early in their move.... SteveD
Looking with low pe are like that for a reason and you should stay away from them unless your looking to keep them for over a year or their oil stocks. Stocks move because of growth and sector popularity and these stocks usually have a high pe because people will bid up for growth and not value plays. Just look at microsoft they make money hand over fist and they have a relatively low pe for their sector because they lack the growth that they once had so they become out of vogue. Just like the last post use the can-slim method and your bound to make money most of the time because this method is what institutional buyers like to buy.