Focusing on cheap stocks to buy often adds undue risk since. As the saying goes, cheap stocks are cheap for a reason. But that doesn’t mean investors can’t find lower-priced gems worth a look. One such potential winner is exchange-traded products firm Wisdom Tree (WT).
So as Wall Street digests the latest earnings from megacap Nvidia (NVDA), here are three reasons — including a budding breakout — the ETF provider could prove a wise choice for your portfolio.
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1. Wisdom Tree Setups — With This Positive Twist
The IBD Methodology focuses on stocks priced above $10 a share. With a current price of just under $12, Wisdom Tree barely makes that requirement. Yet several factors elevate the company above other cheap stocks on the market.
Following a heavy-volume gap-up on Nov. 6, Wisdom Tree has just launched a fresh breakout, clearing a 11.72 entry in a cup with handle. The positive twist for the ETF firm is that the new pattern is first-stage, which significantly reduces risk while improving the chances of a successful climb.
After poking its head into buy range on Wednesday, Wisdom Tree gapped up early Thursday, lifting it further into the buy zone.
It is a first-stage base because Wisdom Tree reset its base count by undercutting the low in its prior pattern. As shown on a weekly chart, the stock did that when it retreated below the 9.31 low in its previous flat base in June and early July.
With the stock back above its 10-week moving average with its relative strength line on the rise, that reset could clear the decks for a sustained run from Wisdom Tree.
By contrast, Nvidia stock is in a fourth-stage base. Such late-stage patterns can work, but add an extra element of risk. The AI juggernaut spiked higher early Thursday, but quickly retreated before finding support at its 21-day line.
2. Building On Big Growth
An impressive track record of growth and a positive outlook provide another potential catalyst.
Over the last five quarters, Wisdom Tree has generated sales growth ranging from 18% to 25%. In its latest report on Oct. 25, the company posted $113.2 million in revenue. For Q4, analysts expect a 24% year-over-year gain to $112.7 million.
Wisdom Tree has also delivered strong bottom-line gains. Over the last five quarters, it has posted earnings growth ranging from 67% to 175%. Showing why it remains among the top cheap stocks to watch, Wisdom Tree grew earnings 80% to 18 cents per share last quarter. For the full year, consensus analyst estimates call for a 76% gain to 65 cents a share.
3. Clear Demand For Wisdom Tree Stock
A third factor making Wisdom Tree one of the best cheap stocks to watch is solid institutional demand.
In addition to a 1.4 up/down volume ratio and a B Accumulation/Distribution Rating, Wisdom Tree sports six quarters of rising fund ownership. Plus, 25 funds with an A+ or A rating from IBD have a position in Wisdom Tree stock.
All these factors contribute to Wisdom Tree earning the highest-possible 99 Composite Rating. That actually tops the 97 score for Nvidia.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
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