These low-priced stocks could be set for big turnarounds.
Investors often avoid low-priced stocks, or what are sometimes referred to as penny stocks. In general, companies with low share prices tend to be higher risk and have serious concerns around their balance sheets, business models or economic outlooks going forward. When buying low-priced stocks, it’s wise to do some extra due diligence. That said, there can be some real diamonds in the rough among the low-priced stocks group. And, given their often tiny starting valuations, upside can be tremendous if and when a low-priced company manages to turn its operations around. With that in mind, these nine low-priced stocks could be worthy of a speculative buy for the rest of 2022.
Sundial Growers Inc. (ticker: SNDL)
Sundial Growers is a true penny stock, as it currently trades for less than 50 cents per share. The company is more formidable than its stock price might indicate, however. Due to significant dilution over the years, it still has a market capitalization of more than $1 billion. The company’s original efforts at marijuana cultivation failed to reap much reward. However, the company has pivoted to cannabis retail stores along with lending to other marijuana businesses. Because marijuana remains illegal on a federal level, few banks are willing to provide financing to the cannabis industry. This gives Sundial a unique opportunity to fill the gap. Cannabis stocks remain in a bitter downtrend, but if and when that changes, Sundial could be poised for a significant recovery.
New Gold Inc. (NGD)
New Gold is a mid-tier gold-mining operation. The company has mines in Canada and Mexico. New Gold is slated to be highly profitable; shares trade for less than 12 times 2022’s projected earnings. On an enterprise value to earnings before interest, taxes, depreciation and amortization, or EBITDA, basis, shares go for a multiple of three. That’s a bargain. The current issue for New Gold is the price of gold, which has fallen back to less than $1,900 per ounce after its recent run above the $2,000 mark. With the historic surge in inflation, gold investors surely expected gold to move above $2,000 per ounce with ease. Instead, its slide has hurt sentiment in gold miners like New Gold. However, with the economic situation remaining volatile, gold could pick back up at any time.
Trivago NV (TRVG)
Trivago is an online travel agent primarily focused on the hospitality industry. The company has a unique business model, in that it relies primarily on referral revenue from Booking Holdings Inc. (BKNG) and Expedia Group Inc. (EXPE) to drive its business. This makes sense, in particular, as Expedia is the majority shareholder of Trivago. As customer traffic picks back up on Booking and Expedia, this should, in turn, send more customers to Trivago as well. This is starting to reflect itself in the numbers: Trivago’s revenues rebounded in 2021 after a terrible 2020. Analysts see Trivago’s revenues jumping another 59% in 2022 and the company returning to profitability on an earnings-per-share basis. This could make Trivago an interesting economic reopening pick that still has upside even as so many other travel stocks have already returned to their pre-COVID-19 levels.
IRSA Propiedades Comerciales SA (IRSA)
IRSA Propiedades Comerciales is an Argentine commercial real estate property owner. It primarily owns malls, outlet centers, offices and entertainment complexes in Buenos Aires and other Argentine cities. It also has some holdings in Uruguay, and it also owns some undeveloped land for future use. Argentina is now on an upward trajectory, both on an economic and political basis. Conservative politicians are gaining strength in the polls, which bodes well for investors going into next year’s presidential election. Argentina has long been mismanaged, however an improving political backdrop combined with rapid economic growth could dramatically change investor sentiment. Meanwhile, sky-high oil, gas, grain and copper prices are generating windfall profits for Argentine commodity exporters. All this should add up to an improving market for Argentine commercial real estate, giving IRSA stock a significant boost.
BRF SA (BRFS)
BRF is a Brazilian company that is a large player in the packaged foods and poultry processing industries. Shares have lost roughly half their value since early 2021. That’s in large part due to inflationary pressures including higher grain prices, labor costs and logistical expenses. Unlike many penny stocks, however, BRF is still delivering strong financial results. Shares are trading at less than 9 times forward earnings despite all the current headwinds. On the other side of the coin, the company has been able to raise prices quickly, so it should be able to improve its profit margins sooner or later. Brazil’s economy is also picking up steam, so that helps to an extent as well. There’s one more positive: Large BRF shareholder Marfrig announced earlier this year that it will be taking an activist role in the company, which could help unlock value.
Ambev SA (ABEV)
Ambev, a leading Brazilian brewing company, is an outlier among the top low-priced stocks, boasting more than a $40 billion valuation. The company operates as a regional arm of global beer giant Anheuser Busch Inbev SA (BUD). Unlike many sub-$5 stocks, Ambev has no financial difficulties or major structural problems. In fact, it has a large net cash position, trades at a low price-earnings multiple and offers investors a healthy dividend. Shares have declined, however, due to factors outside of the company’s control. These include an unsettled political situation and soaring inflation in Brazil, along with a steep drop in on-premise beer consumption thanks to the pandemic. Both of these issues should clear up in 2022. Brazil has elections this year, which will provide certainty to the political situation. Meanwhile, restaurants and bars are reopening and the World Cup later this year is a huge drinking event in South America.
UWM Holdings Corp. (UWMC)
UWM is one of America’s large mortgage underwriters. The company went public via a special purpose acquisition company, or SPAC, in early 2021. Like so many SPACs, the party didn’t last long for UWMC stock and its shares are down more than 60% from the initial $10 offering price. There is specific reason for the drawdown as well: Analysts expect the housing market to slow dramatically thanks to higher interest rates. The demand for refinancing of existing mortgages will also slump as interest rates surge. UWM is set to generate sharply lower profits in 2022 and probably 2023 as well. Even at 2022’s much lower earnings, however, analysts see the company bringing in 41 cents per share in profits this year, which would result in a price-earnings ratio around nine. The stock also pays a 10.7% dividend yield. This won’t be an easy year for the company, but shares should rebound once interest rates stop rising.
Bark Inc. (BARK)
Bark is a leading direct-to-consumer pet products company. The company made its name with its original Barkbox service, a subscription offering that sends products such as dog toys to members on a monthly basis. This is a relatively small niche, however, and so Bark is now moving into larger markets such as dog food and pet health. If Bark is able to successfully expand its footprint into these larger categories, the company could surprise some folks. BARK stock is currently trading beneath $3 — way down from its $10 SPAC price — due to the market’s uncertainty. And if the pet food move doesn’t work out, Bark would be in trouble. At this price, however, the odds seem in favor of taking a shot on Bark getting out of the doghouse in 2022.
Republic First Bancorp Inc. (FRBK)
Republic First Bancorp is a small regional bank operating primarily in Pennsylvania, New Jersey and New York. The bank’s CEO is Vernon Hill, who previously started the highly successful Commerce Bank which was ultimately acquired by a subsidiary of Toronto-Dominion Bank (TD). Investors in Republic First Bancorp are getting a chance to participate in Hill’s next act. The valuation is hardly demanding either for this regional bank stock despite the highly respected CEO. Shares trade at just 12 times earnings and are selling at a nearly 20% discount to book value. Republic First Bancorp also has a gigantic 15% of its stock float sold short at the moment. This means there is a lot of fuel out there for a potential short squeeze if the bank can deliver a positive earnings surprise or other upbeat news.
9 best cheap stocks to buy now under $5:
— Sundial Growers Inc. (SNDL)
— New Gold Inc. (NGD)
— Trivago NV (TRVG)
— IRSA Propiedades Comerciales SA (IRSA)
— BRF SA (BRFS)
— Ambev SA (ABEV)
— UWM Holdings Corp. (UWMC)
— Bark Inc. (BARK)
— Republic First Bancorp Inc. (FRBK)
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