These $5 stocks may have major upside.
The rocky start to 2022 in the market has dragged down the stock prices of many high-quality stocks and created a handful of opportunities for long-term investors to scoop up cheap shares. Investors looking for bargain stocks trading under $5 find themselves searching through plenty of bad investments. A low share price is often an indication a company is struggling and a stock is a risky bet, but there are also some hidden $5 gems to buy on the dip as well. Here are nine cheap stocks to buy now for under $5, according to Morningstar.
Lloyd’s Banking Group PLC (ticker: LYG)
Lloyd’s Banking Group is a diversified bank and insurance provider based in the U.K. Analyst Niklas Kammer says rising interest rates helped boost Lloyd’s net interest income 10% in the first quarter, and he says the bank will fare well in a higher-rate environment. In fact, Lloyd’s net interest margin grew from 2.54% in the fourth quarter of 2021 to 2.68% in the first quarter of 2022. Unfortunately, the downside to rising interest rates is the possibility of slowing loan growth. Morningstar has a “buy” rating and $3.70 fair value estimate for LYG stock, which closed at $2.24 on June 1.
Mizuho Financial Group Inc. (MFG)
Mizuho Financial is one of Japan’s three largest financial services companies. Analyst Michael Makdad says banks have been battling a difficult environment in Japan for years now thanks to deflation and persistently low loan demand. Makdad says the Japanese banking climate will likely continue to be challenging for the foreseeable future, but Mizuho has significantly expanded its international business in the past decade. In addition, he says Mizuho’s relatively small consumer finance and credit card operations give it greater digital flexibility than its top competitors. Morningstar has a “buy” rating and $2.85 fair value estimate for MFG stock, which closed at $2.31 on June 1.
Nomura Holdings Inc. (NMR)
Nomura is Japan’s largest investment bank and brokerage. In the first quarter, Makdad says Japanese retail investors dialed back their market activity amid concerns over an uptick in volatility driven largely by inflation concerns and the war in Ukraine. In fact, Nomura’s retail segment revenues were down 19% compared to the fourth quarter of 2021. Nomura’s wholesale securities business helped pick up the slack. In addition, Makdad says Nomura has built a valuable brand and reputation for investment product competency among high net worth clients in Japan. Morningstar has a “buy” rating and $5 fair value estimate for NMR stock, which closed at $3.90 on June 1.
Rolls-Royce Holdings PLC (RYCEY)
Rolls-Royce Motor Cars Ltd. is now a wholly owned subsidiary of BMW, but Rolls-Royce Holdings PLC designs and produces power systems used in aviation and other industries. Analyst Joachim Kotze says Rolls-Royce Holdings has potential long-term growth drivers in its electric planes and small modular nuclear reactors business segments. Unfortunately, the company is still a long way from being commercially viable in those growth markets. For now, Kotze says Rolls-Royce’s medium-term outlook hinges on recovery of its civil aerospace segment, which has benefited from the global lifting of pandemic travel restrictions. Morningstar has a “buy” rating and $1.40 fair value estimate for RYCEY stock, which closed at $1.14 in over-the-counter markets on June 1.
Tencent Music Entertainment Group (TME)
Tencent Music Entertainment is a leading online music platform in China and is the owner of popular apps QQMusic, Kugou Music, WeSing and Kuwo Music. Tencent Music’s stock price is down more than 75% in the past year amid dual crackdowns on U.S.-listed Chinese stocks by U.S. regulators and on big tech stocks by Chinese regulators. Analyst Ivan Su says crackdowns weighed on Tencent Music’s first-quarter social entertainment services segment, but the company’s subscription revenue growth could create valuation upside. Morningstar has a “buy” rating and $8 fair value estimate for TME stock, which closed at $4.11 on June 1.
Tilray Brands Inc. (TLRY)
Tilray is a Canadian legal cannabis producer that also operates in the U.S., Europe and Latin America. Cannabis stocks have been pressured since early 2021. There has been very little progress toward U.S. cannabis reform, even with Democrats controlling the White House and both houses of Congress. Analyst Kristoffer Inton says Tilray is one of the few Canadian cannabis producers that has been consistently profitable in a difficult Canadian market, and he says the company’s expansion into Germany has been a major success. Morningstar has a “buy” rating and $14 fair value estimate for TLRY stock, which closed at $4.18 on June 1.
Cronos Group Inc. (CRON)
Cronos is another major Canadian cannabis producer that operates in five different continents. Inton says Cronos significantly reduced its losses in the first quarter after taking aggressive cost-cutting measures. In addition, he says Israel was a major growth driver, with sales up 260% to $9 million in the quarter. Inton says Cronos broke its pattern of widening losses in the first quarter. Gross margins flipped from negative 23% in the fourth quarter to positive 28% in the first quarter of 2022, and losses narrowed 50% from a year earlier. Morningstar has a “buy” rating and $5 fair value estimate for CRON stock, which closed at $2.86 on June 1.
Aurora Cannabis Inc. (ACB)
Aurora Cannabis is yet another Canadian legal cannabis producer that has taken a beating in recent years. Inton says Aurora’s cost-cutting initiatives have paid off in the past few quarters. However, a nearly 30% sequential drop in adult-use revenue and 14% sequential decline in medical revenue in the most recent quarter were disappointments. Inton says adult-use sales declines stem from overall demand weakness and market share losses. He says Aurora has significant potential valuation upside but may only be appropriate for investors with extremely high risk tolerance. Morningstar has a “buy” rating and $7 fair value estimate for ACB stock, which closed at $1.57 on June 1.
The RealReal Inc. (REAL)
The RealReal is a digital marketplace that specializes in secondhand luxury consignment sales. Analyst Sean Dunlop says resale is the fastest-growing segment in the struggling apparel market, and elevated mobile commerce volume and growing home delivery infrastructure are significant tail winds. Given that the luxury apparel resale space has historically been “chronically underserved,” Dunlop projects global apparel resale will represent a $301 billion global market by 2031. In the near term, The RealReal will continue to face pressures from inflation, rebounding brick-and-mortar sales and difficult year-over-year comparisons. Morningstar has a “buy” rating and $13.30 fair value estimate for REAL stock, which closed at $2.96 on June 1.
9 best cheap stocks to buy now under $5:
— Lloyd’s Banking Group PLC (LYG)
— Mizuho Financial Group Inc. (MFG)
— Nomura Holdings Inc. (NMR)
— Rolls-Royce Holdings PLC (RYCEY)
— Tencent Music Entertainment Group (TME)
— Tilray Brands Inc. (TLRY)
— Cronos Group Inc. (CRON)
— Aurora Cannabis Inc. (ACB)
— The RealReal Inc. (REAL)
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Update 06/02/22: This story was published at an earlier date and has been updated with new information.