2 of the Cheapest Stocks I Own
In the stock market, there are essentially two reasons stocks go up. First, the underlying performance improves, so a stock's revenue, profits, or cash flow goes up. Naturally, you'd expect a company to become more valuable as it gets bigger and earns more money.
The second reason a stock can go up is because the multiple that investors are applying to that stock, based on a figure like revenue, profit, or cash flow, goes up. This is known as multiple expansion when a valuation multiple, such as a price-to-earnings ratio (P/E) expands, and multiple compression when it goes down.
Because of multiple expansion, it's much easier for a cheap stock to outperform an expensive stock, assuming they are otherwise comparable, so it makes sense for investors to look for cheap stocks, especially at a time like this when so many stocks are down sharply.
Source Fool.com
