PostHeaderIcon Looking Out For Stocks With Value Traps

Investors usually try to find stocks that they may be able to buy at low value and with the promise of selling high in the future. After all, that is the basic principle of success in the stock market. But hunting for stocks with values lower than their expected worth is not always that easy. There are also those so-called value traps that investors may have to consider as well. Here are just some of them:

Stocks With Multiple Low Value Traps

There are stocks that may seem to fetch for a low price despite its expected book value in the market. But it is not always to be considered a bargain and an easy buy. It might be a value trap. This can be considered if the stock has always been trading at low book value, earnings or cash flow for extended periods of time. This happens because the company may showing little promise for growth in the future. Be wary of such stocks as they can cause your money to languish in the market.

Stocks With Multiple Types Of Shares

There are some companies that offer different types stocks. They can be divided into common and preferred stocks which usually provide its holders with different levels of voting privileges. Preferred shares usually have higher voting rights than common shares. The former may also have certain special dividend arrangements than the latter. Investors should be careful about investing in companies that offer multiple types of shares. Some of such companies usually focus on keeping preferred stockholders happy since they usually are the ones who have a higher stake at the company and are usually large investors compared to the common stockholders.

Companies That Hold Small Floats

Companies that offer stocks at relatively small floats in the market can potentially be value traps. Larger investors that are able to move markets usually look for stocks that are offered at a certain value as well as volume. They make sure that they are able to own stocks that matter and they can buy in large quantities. These investors usually never bother with companies that offer stock shares in miniscule volume in the market. Aside from being harder to acquire as well as dispose in large volumes, small floated shares which can affect the market. Under such conditions, these stocks may become potential value traps.

Companies That Lack New Products

Stocks from companies that do not have any new products to offer might also be potential value traps. No matter how good a company may look now, it may need some form of catalyst in order to move forward and grow. Companies that do not offer anything that becomes a catalyst to spur further growth in the future become potential value traps.


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