Buy The Dip: Best Cheap Stocks To Buy Now
When markets swoon and stock prices drop across the board, smart traders know there are deals to be had. But picking the right stock to buy is tough: How do you decide which ones are poised to bounce back?
Buying the dip is not a simple trading strategy and should be cautiously approached. Done right, you can earn a fat discount on stocks with sound fundamentals and strong prospects. Think of it like buying quality stocks at a discount.
The truth is that many great companies get dinged in short-term market drops but tend to perform very well over time. When you know which metrics of quality to track to uncover cheap stocks to buy, you can pick winners that the market may reward with higher prices after the dip.
We have identified nine cheap stocks to buy that have fallen along with the S&P 500 and other major stock indexes over recent months. Each company has a multiyear history of growing earnings per share (EPS) and revenue, and analysts are still expecting similar growth in the years ahead.
Best Cheap Stocks To Buy Now
Monolithic Power Systems, Inc. (MPWR)
Trailing 3-Year Annualized EPS
+28.86
Trailing 3-Year Annualized Revenue
+27.5%
Forward 5-Year Annualized EPS Estimate
+25%
Why We Picked It
Ubiquiti Inc. (UI)
Trailing 3-Year Annualized EPS
+16.8%
Trailing 3-Year Annualized Revenue
+23.1%
Forward 5-Year Annualized EPS Estimate
+23.9%
Why We Picked It
Microsoft Corp. (MSFT)
Trailing 3-Year Annualized EPS
+28.6%
Trailing 3-Year Annualized Revenue
+15.1%
Forward 5-Year Annualized EPS Estimate
+16.2%
Why We Picked It
Chipotle Mexican Grill, Inc. (CMG)
Trailing 3-Year Annualized EPS
+48.7%
Trailing 3-Year Annualized Revenue
+15.8%
Forward 5-Year Annualized EPS Estimate
+27.2%
Why We Picked It
ASML Holding NV (ASML)
Trailing 3-Year Annualized EPS
+31.5%
Trailing 3-Year Annualized Revenue
+19.4%
Forward 5-Year Annualized EPS Estimate
+29.8%
Why We Picked It
Deckers Outdoor Corp. (DECK)
Trailing 3-Year Annualized EPS
+22.5%
Trailing 3-Year Annualized Revenue
+15.9%
Forward 5-Year Annualized EPS Estimate
+16.3%
Why We Picked It
Medifast, Inc. (MED)
Trailing 3-Year Annualized EPS
+38.2%
Trailing 3-Year Annualized Revenue
+45%
Forward 5-Year Annualized EPS Estimate
+20%
Why We Picked It
Intuit Inc. (INTU)
Trailing 3-Year Annualized EPS
+17.5%
Trailing 3-Year Annualized Revenue
+17.3%
Forward 5-Year Annualized EPS Estimate
+17.5%
Why We Picked It
EPAM Systems, Inc. (EPAM)
Trailing 3-Year Annualized EPS
+23.4%
Trailing 3-Year Annualized Revenue
+26.8%
Forward 5-Year Annualized EPS Estimate
+18.7%
Why We Picked It
*All analysis and data are sourced from Trades That Swing, current as of June 5, 2022.
Methodology
Our curated list of cheap stocks to buy now is built using strict criteria. The stocks outlined above are traded on U.S. or Canadian stock exchanges and meet the following requirements:
- Sustained average annual EPS growth. All of the stocks above have delivered at least five consecutive years of annual EPS growth of greater than 15% per year.
- Sustained average annual revenue growth. Chosen stocks have delivered at least five consecutive years of annual revenue growth of more than 10% per year.
- Sustained year-over-year EPS gains. EPS must be higher than the prior year in each of the last four years.
- No negative earnings in the last four years. While sustained earnings growth is key, profitability is even more important, so no stocks should have seen negative EPS in the past four years.
- Sustained growth seen in forward EPS estimates. Average analyst estimates for annual EPS growth over the next five years are greater than 15% per year.
- Next year’s EPS estimates should be strong. The average analyst estimate for next year’s EPS growth should be 15% or greater.
- Long-term returns that beat the market. Any stock that satisfies the other criteria has also outperformed the S&P 500 by a comfortable margin. Five-year, annualized returns should be at least 10% higher than the S&P 500’s performance over the same period.
- A recent price drop. The stocks on our list have all seen a price drop of 20% or more from a recent high. Historical price drops are then used to explain how deep pullbacks tend to go before reversing to the upside.
These criteria aim to uncover stocks that have been growing their earnings and revenue and are expected to continue growing these key metrics. While analyst estimates aren’t always accurate, they provide a handy measure of consensus expectations—and stocks often move based on their expectations.
When buying the dip, consider when you will purchase and when you will exit…whether the stock drops or rises. It is unknown how far a stock will drop before it recovers or whether it will continue to trend higher in the future.