Cramer: Should You Ever Buy Stocks Below $5?
For some investors $5 is considered the third rail of investing - just too dangerous. But is it?
Many pros won't touch a stock under $5. They say a stock is cheap for a reason. That is, the market has voted on the stock with their collective wallets.
They also argue moves in the stock can be exaggerated because big money can purchase a significant number of shares – again because the price of each share is relatively low.
Of course, there's something to be said for that line of thinking – but if you subscribed to it blindly, then last year you missed some pretty good opportunities.
"That's right, if you bought a series of highly-visible below-$5 stocks you made fortunes," said Cramer.
Check out these gains.
"If you bought Sprint in May of last year at $2.30 you have now much more than doubled your money. If you had purchased Clearwire at 91 cents as recently as July 26th of 2012, you caught a triple," said Cramer.
"If you had taken a chance with Nokia back in July at $1.69 you have more than doubled your capital by early January," Cramer added.
In every case these companies were thought to be on the ropes. Yet, it turns out they all had more value than investors realized because the value was obscured by another catalyst.
And therefore the Mad Money host says – yes – as long as you understand that your bets are speculative – and as long as you do your homework – you should buy at least some stocks below $5.
What's the moral of the story?
"Speculate, it can work," said Cramer. "I regard the gains outlined above as verification of my theory that everyone should have a some speculation in his or her portfolio. It can make the process intriguing and it can make huge profits if the story pans out."
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