3 Top Stocks Trading Under $5 a Share

Not all investors have a hoard of cash at the ready to buy stocks, so they search for companies with stocks trading at lower per-share prices. Done right, this approach makes sense for some. But investors should be aware that targeting cheap stocks comes with risks.

Companies with shares trading under $5 are most often small-cap and mid-cap stocks, which tend to be newer businesses with less diversification in how they operate and where their revenue comes from. As a result, they are disproportionately unprofitable, produce more volatile operating results, and have more volatile share prices.

Recent stock-trading rule changes have created an alternative, and many brokerage platforms now offer fractional shares, which allow investors to easily purchase a portion of a share of stocks or exchange-traded funds (ETF) with any level of funds (even less than $5). This has become a great option for diversification or as small purchases for investors who can't sink a large amount of capital into the stock market.

Source Fool.com