Top penny stocks for the fourth quarter of 2023.

A low-value stocks, so-called illiquid stocks (priced below $5 per share), are characterized by high volatility and the potential for significant returns. While they can offer excellent rewards, they also have great risks because of their low market capitalization and the limited information investors have about them. Low value stocks are usually small or emerging companies. They are considered potential gems, but require careful consideration and dillegence, given their sharp price swings and the fact that many turn out to be hopeless.

This month's top low-cost stocks

This month's top low-cost stocks are Myomo Inc,'''Expion360 Inc. and Akebia Therapeutics Inc. have all more than tripled in value over the past year. Here are the three low-cost stocks with the best value, fastest growth and highest momentum. All information is current as of November 24, 2023.

The stocks with the lowest profitability ratios (P/E)

These are the low value stocks with the lowest profitability (P/E) ratios over the past 12 months. A low P/E ratio indicates that you pay less for every dollar of earnings you may receive in the form of dividends or share repurchases.

The best low-cost growth model stocks

The best low-cost stocks valued by the growth model, which values companies based on a growth ratio''s revenue and earnings per share (EPS) growth for the most recent quarter. Both sales and earnings are important drivers of a company's success. Therefore, ranking companies based on only one growth metric makes the ranking susceptible to accounting anomalies from that quarter (such as tax law changes or restructuring costs), which can make one or the other figure unnaturally significant. Companies with quarterly EPS or revenue growth greater than 1000% were excluded as outliers.

The stocks with the highest total return

These are the low-cost stocks that have posted the highest total returns over the past 12 months.

The potential for high returns.

Most low value stocks have small market''capitalization, so it takes a small amount of money for their price to change significantly.

Leverage

Low cost stocks attract investors with little trading capital because their low cost allows them to buy thousands of shares. For example, an investor with $500 can buy 2,000 shares of a low-cost stock at 25 cents. If the stock doubles in a month, the investor makes a quick profit of 100%. However, with the same initial capital, the investor''can only afford a small number of shares of the most active S&P 500 stocks, which is nearly impossible to do while generating the same returns in the same amount of time.

Lack of liquidity

Low value stocks often trade on low volume, making it difficult to enter and exit positions. In addition, these stocks usually have a wide spread between the bid and ask price, which increases trading costs. For example, if a low-volume stock has a bid at $1.00 and an offer at $1.50, a trader who wants to buy at the market price pays a premium of 50 cents per share. Therefore, investors should use limit buy and sell orders to minimize trading costs when buying and selling shares''low cost.

Extreme valuations

Low valuation stocks that begin to rise in value quickly get listed on stock lists and may even attract media attention. This often attracts more speculators who continue to drive up prices, leading to volatile valuations. For example, during the Internet technology bubble of the late 1990s, many low-value technology stocks doubled and tripled in price despite the fact that they were not profitable. However, when the market began to fall a few years later, many Nasdaq-listed low-value stocks with unsustainable valuations fell significantly or were removed from trading.

The comments, opinions and analysis featured in Investopedia are provided only in''informational purposes. Date of writing by the author: the author does not own any of the above shares.