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Ask the Fool

Quality Beats Price

August 08, 2000

Q I'm trying to find a publication that recommends stocks priced under $5 a share, because I have only $5,000 to invest. Can you help?

-- R.L., Vacaville, Calif.

There are such newsletters, but we highly recommend against them. First, a stock trading for less than $5 is technically a "penny stock." These generally are stocks of very small, money-losing companies. They tend to be very volatile and extra risky, and they're more likely to fail than flourish. Second, $5,000 is enough to buy into more established and promising companies, though you may be starting with relatively few shares. Remember: A $150 stock might be undervalued, while a $3 stock may be overvalued and about to become worthless. It isn't the price per share that's important, but the quality of the investment.

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