Not all low-priced stocks are value traps; these nine hold strong appeal.
There’s a perception that low-priced stocks tend to be risky. And for many penny stocks, that is indeed the case. However, many lower-priced stocks are in fact profitable and have strong business prospects. For value investors looking for a bargain, there can be real gems to be found among stocks with single-digit stock prices. That’s especially true during a bear market in which more and more stocks are finding themselves at depressed valuations. In general, investors should use caution when analyzing lower-priced stocks. But there’s no need to exclude the category from a portfolio entirely. Here are nine of the best stocks to buy for less than $10.
Enel Chile SA (ticker: ENIC)
Enel Chile is, by far, the largest power utility in Chile. The company is also a leader in renewable energy, with its renewable capacity hitting 5.6 gigawatts as of June 2022. The company also services more than 1,200 electric charging points to help foster the development of the electric car market. The company’s profitability has come under pressure lately due to higher inflation and commodity costs; however, the company is building out other businesses, such as its services division, to offset higher production costs. Meanwhile, shares have plunged from $4 to just over a dollar today, which is an excessive punishment for the firm’s short-term obstacles. Even as is, Enel Chile is expected to produce 20 cents per share of earnings this year, which puts it at an attractive forward price-earnings ratio of less than 6.
New York Community Bancorp Inc. (NYCB)
New York Community Bancorp is a large American regional bank focused on the New York City metro area. It has built a strong franchise in lending against multi-family apartments in that metro area. This is not the highest-profit-margin business out there, but it’s exceptionally low-risk. New York Community Bancorp only lends out 60% or so of the value of a building to its customers, on average, ensuring against downside even during a major recession. To that end, New York Community remained profitable and paid its regular dividend during the 2008 and 2009 housing meltdown. Shares are currently trading for less than 8 times earnings and pay a compelling 7.3% dividend yield. Meanwhile, an upcoming merger with Flagstar Bancorp Inc. (FBC) should give New York Community Bancorp a new avenue for growing its earnings as well.
Algoma Steel Group Inc. (ASTL)
Algoma is a Canadian company that produces hot and cold rolled steel sheet and plate products. The company went public in 2021 and is still trading around its initial $10 offering price. What’s interesting is that Algoma has been highly profitable given the current favorable commodity price environment. Shares are, remarkably enough, selling for less than 3 times forward earnings. As a result of the current profitability boom, Algoma has decided to engage in a massive $400 million tender offer to repurchase its stock between $8.75 and $10.25 per share. Based on its current capitalization, this offer should retire roughly 25% of the company’s total outstanding stock. It’s one thing to see a commodity company trading at a low P/E, but it’s quite another to see that valuation backed up with a major share repurchase program such as this one.
Arcos Dorados Holdings Inc. (ARCO)
Arcos Dorados is the primary franchise partner for McDonald’s Corp. (MCD) in Latin America. It operates roughly 1,600 McDonald’s locations directly, and subfranchises out hundreds more. Key markets include Brazil and Argentina. Over the years, Arcos Dorados has seen up-and-down performance. Political and economic problems in key markets have limited the company’s growth potential. However, things should be looking better now. The prices of key South American exports, such as copper, iron ore and grains, have soared over the past year, leading to a sharply improved economic position for countries such as Brazil. Over time, this should filter down to consumers, giving Arcos Dorados better demand and pricing power. On top of that, shares are reasonably priced today, trading for less than 17 times forward earnings.
Diversey Holdings Ltd. (DSEY)
Diversey is the world’s second-largest company focused on professional cleaning and sanitation solutions, trailing only Ecolab Inc. (ECL). Ecolab historically has had top-notch management and excellent capital allocation and has earned a strong valuation as a result. Diversey, by contrast, has a more mixed record and thus is a cheap stock today. However, the company’s hygiene, infection prevention and cleaning solutions businesses should remain in high demand. In fact, the company is something of a reopening play, as customers such as hotels, restaurants, universities and so on generated much less business during the pandemic. As the company’s mergers and acquisitions program and profit margin improvement efforts pick up speed post-pandemic, Diversey could enjoy a swift recovery. If the stock can ever obtain a valuation on par with Ecolab, shares could be a multi-bagger from its price of $6.35 as of July 18.
Corporación América Airports SA (CAAP)
Corporación América Airports is one of the world’s largest private airport operators. It runs 53 airports across Argentina, Brazil, Italy and various other countries. The company’s biggest market is Argentina, which caused it to plunge in 2020 amid the one-two punch of Argentine economic problems and COVID-19. Unlike various Latin American countries, Argentina kept its tourism sector limited due to the pandemic for an extended period. However, CAAP stock is set to take flight again. The company returned to profitability on an earnings-per-share basis in the first quarter of 2022. Meanwhile, shares trade for just 6 times enterprise value to earnings before interest, taxes, depreciation and amortization, or EBITDA. That’s an unbelievably low ratio compared with the airport operators as a group. As Argentine travel continues to pick back up, shares should move sharply higher.
Equinox Gold Corp. (EQX)
Equinox is a midsize gold-mining company with operations in Canada, the U.S., Mexico and Brazil. It currently has six working mines, with another one under construction. The company has 30 million ounces of measured and inferred gold resources, and it projects producing 625,000 ounces of gold this year. Over time, Equinox plans to hit at least 1 million ounces per year of production. Right now, the stock is out of favor, with shares falling from a high of $9 to around $4 now. However, with inflation running hot, don’t expect the current correction in gold-mining equities to last too long. Meanwhile, Equinox is trading at a low-single-digit P/E ratio and at less than half of book value. For value investors wanting an inflation hedge, Equinox could be a savvy choice today.
UWM Holdings Corp. (UWMC)
UWM Holdings is one of the United States’ largest mortgage underwriting firms. The company went public amid a significant amount of investor excitement. However, like many special-purpose acquisition companies, or SPACs, UWM stock has since plunged from its initial price. It’s not hard to see why. Mortgage demand is likely to crater in 2022 given the rapid rise in interest rates. Just based on this year’s results, it might make sense to sell UWM, as earnings are expected to fall dramatically compared with 2021. But there’s a long-term franchise here, and sooner or later, housing demand will pick back up. After all, millennials are a large demographic group, and they are likely to move from apartments to houses in due time. On top of that, interest rates won’t keep rising forever. When mortgage demand comes back, UWM’s profits should rebound and lift the share price with it.
Mizuho Financial Group Inc. (MFG)
Mizuho finds itself among Japan’s larger banking operations, with roughly 8% market share across both deposits and lending. Historically, Mizuho has struggled to show much growth. That’s in large part because Japan’s economy has struggled since the 1990s and both consumers and companies have demanded less credit from banks. Mizuho has reacted, however, investing more in overseas markets such as Vietnam with better growth potential. And now, with interest rates and inflation surging, Mizuho may finally be able to earn better profits in its domestic market as well. Investors are rightfully wary of Mizuho and other Japanese banks given their lackluster long-term performance. However, the sector may be at a turning point. And, as things stood on July 18, shares sold for less than 8 times earnings and offered a 6.1% dividend yield.
9 of the best cheap stocks to buy under $10:
— Enel Chile SA (ENIC)
— New York Community Bancorp Inc. (NYCB)
— Algoma Steel Group Inc. (ASTL)
— Arcos Dorados Holdings Inc. (ARCO)
— Diversey Holdings Ltd. (DSEY)
— Corporación América Airports SA (CAAP)
— Equinox Gold Corp. (EQX)
— UWM Holdings Corp. (UWMC)
— Mizuho Financial Group Inc. (MFG)
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9 of the Best Cheap Stocks to Buy Under $10 originally appeared on usnews.com
Update 07/19/22: This story was published at an earlier date and has been updated with new information.
