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Fourteen cheap small-caps

Fourteen cheap small-caps

The big question for value investors is whether a seemingly cheap share is cheap for a reason. Indeed, finding lowly rated shares is not difficult, but correctly identifying those that represent real value as opposed to 'value traps' is. Dangers for value investors are particularly pronounced when searching for smaller company value plays. This is because smaller companies tend to have weaker financial backing and less diverse operations, which makes them more vulnerable to deteriorating trading conditions. A good rule of thumb for investors hunting for this sort of stock is to be particularly wary of any company with shares priced at less than seven times forecast earnings and offering a dividend yield of over 7 per cent. Normally stocks only become this lowly rated when there is a considerable chance that profits will seriously deteriorate.

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