These sub-$5 stocks may have major upside.
The market’s rocky start to 2022 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 seven cheap stocks to buy now for under $5, according to Morningstar.
Lloyd’s Banking Group PLC (LYG)
Lloyd’s Banking Group is a diversified bank and insurance provider based in the U.K. Analyst Niklas Kammer says Lloyd’s should thrive in an environment of higher interest rates. Mortgages represent about two-thirds of Lloyd’s customer loans, and U.K. mortgage rates have been pressured. However, the bank’s strategy of prioritizing profits over volume has helped deliver robust net interest margins, Kammer says. In the most recent quarter, banking NIM increased from 2.54% to 2.68%, and Lloyd’s is guiding for full-year NIM of 2.7%. Morningstar has a “buy” rating and $3.70 fair value estimate for LYG stock, which closed at $2.02 on July 7.
Banco Bradesco SA (BBD)
Banco Bradesco is one of Brazil’s largest banks. Analyst Michael Miller says macroeconomic uncertainty creates risk for all Brazilian bank stocks. However, he says Bradesco has generated impressive commercial loan and mortgage growth. In addition, government guarantees and stimulus spending have helped keep the bank’s credit costs low. Miller says Bradesco is well capitalized and has historically been a disciplined underwriter. He says Bradesco is attractively valued and benefits from rising interest rates, but elevated inflation increases risks the Brazilian economy could fall into a recession. Morningstar has a “buy” rating and $4.30 fair value estimate for BBD stock, which closed at $3.23 on July 7.
Mizuho Financial Group Inc. (MFG)
Mizuho Financial is one of Japan’s three largest financial services companies. Analyst Michael Makdad says the banking environment in Japan has been difficult for years now, and he does not anticipate those challenges will go away anytime soon. While the U.S. is battling inflation, Japan has dealt with deflation weighing on loan demand. However, Makdad says Mizuho has opportunities to invest in digitalization that could disrupt traditional banking businesses, such as credit card payments. He says keeping costs under control is crucial for Mizuho moving forward. Morningstar has a “buy” rating and $2.85 fair value estimate for MFG stock, which closed at $2.28 on July 7.
Nokia Corp. (NOK)
Nokia is one of the world’s top infrastructure equipment suppliers to the global wireless communications industry. Analyst William Kerwin says Nokia will continue to benefit from the global 5G upgrade cycle, but Nokia also faces stiff competition. Kerwin says the 5G cycle may be stronger than previous network upgrade cycles because 5G network infrastructure requires additional hardware to cover the increasing amount of spectrum bands and meet the demands of higher transmission speeds. Kerwin says Internet of Things demand could be another growth driver for Nokia. Morningstar has a “buy” rating and $5.70 fair value estimate for NOK stock, which closed at $4.63 on July 7.
Nomura Holdings Inc. (NMR)
Nomura is Japan’s largest investment bank and brokerage. Makdad says Nomura is attractively valued, trading at roughly half its book value. He says an uptick in market volatility and uncertainty surrounding the war in Ukraine dampened retail trading activity in Japan in the first quarter, sending retail segment revenues down 19% on a quarterly basis. Makdad says Nomura has a valuable reputation among high-net-worth customers. He estimates Nomura has historically maintained a greater than 10% return on equity in its domestic retail and asset management businesses. Morningstar has a “buy” rating and $5 fair value estimate for NMR stock, which closed at $3.70 on July 7.
Rolls-Royce Holdings PLC (RYCEY)
Rolls-Royce Motor Cars is now a wholly owned subsidiary of BMW (BMWYY), but Rolls-Royce Holdings designs and produces power systems used in aviation and other industries. Analyst Joachim Kotze says Rolls-Royce is banking on electric planes, small modular nuclear reactors and other new market segments to be long-term growth sources. Kotze says these businesses are not yet commercially viable, and the medium-term bull case for Rolls-Royce depends on recovery of its civil aerospace business. He says new engine deliveries will rise throughout the remainder of 2022. Morningstar has a “buy” rating and $1.40 fair value estimate for RYCEY stock, which closed at $1.07 in over-the-counter trading on July 7.
Scor SE (SCRYY)
Scor is a French reinsurance company that specializes in property and casualty, as well as life, reinsurance. Analyst Henry Heathfield says Scor’s recent underwriting performance has been poor, and the company’s decision to focus on property-casualty reinsurance in Florida has led to heavy losses in recent years from hurricanes Harvey, Irma and Maria. Heathfield says COVID-19-related losses in the company’s health reinsurance business have also been a hurdle for Scor in the past couple of years. Despite the challenges, Heathfield says Scor’s shares are undervalued. Morningstar has a “buy” rating and $2.75 fair value estimate for SCRYY stock, which closed at $1.98 in OTC trading on July 7.
7 best cheap stocks to buy now under $5:
— Lloyd’s Banking Group PLC (LYG)
— Banco Bradesco SA (BBD)
— Mizuho Financial Group Inc. (MFG)
— Nokia Corp. (NOK)
— Nomura Holdings Inc. (NMR)
— Rolls-Royce Holdings PLC (RYCEY)
— Scor SE (SCRYY)
More from U.S. News
Update 07/08/22: This story was published at an earlier date and has been updated with new information.