These sub-$5 stocks may have major upside.
The stock market has started to recover from its slump in the first half of the year. As a result, there aren’t quite as many cheap stocks as there were a few months ago. Still, there are plenty of bargains out there for people willing to look beyond the most well-known companies. As is usually the case, investors should use extra caution with stocks trading below the $5 mark. Firms often end up there due to disappointing operating results, or from having unproven or struggling business models. Regardless, there are companies that make for worthwhile investments below the $5 threshold. Here are seven such cheap stocks to buy now under $5.
Vaalco Energy Inc. (ticker: EGY)
Vaalco is a Houston-based oil and gas exploration company. Historically, its operations have focused on opportunities in Africa, and in particular an offshore basin in the nation of Gabon. In July, the company announced plans to merge with TransGlobe Energy Corp. (TGA). The combined firm will be a broad-based African oil producer with nearly 20,000 barrels of oil-equivalent production per day on a net revenue basis. The merger should allow the combined company to save a lot of redundant costs while improving its operating scale. Vaalco’s shares slipped back below the $5 mark recently with the drop in energy stocks along with some traders selling off the company on the merger news. Shares are now selling at less than three times estimated forward earnings. Even assigning a significant discount due to oil price volatility and geopolitical risk, the stock, which closed at $4.82 on Aug. 3, seems too cheap.
Cementos Pacasmayo SAA (CPAC)
Cementos Pacasmayo is Peru’s largest cement company, with 4.9 million tons of annual production capacity. While cement may seem like a commodity business, it tends to have a competitive moat on a geographic basis. Due to its heaviness, transport costs are prohibitive for shipping cement any great distance. This gives a company like Cementos Pacasmayo something akin to a local monopoly. The company’s profitability revved up in 2021 as the Peruvian economy rebounded from COVID-19. Shares are currently trading for around 12 times earnings. And earnings may be set for more growth. Peru’s economy is heavily based on exports of gold, silver, copper and other commodities that should prosper in an inflationary environment. This, in turn, should create more direct demand for cement at industrial facilities, along with a stronger Peruvian economy in general. Shares closed at $4.85 on Aug. 3.
Banco Bilbao Vizcaya Argentaria SA (BBVA)
Banco Bilbao Vizcaya Argentaria, more commonly known as BBVA, is one of Spain’s dominant banking franchises. In addition to its European operations, BBVA has a sizable footprint across Latin America in markets such as Colombia, Argentina and Peru. Overall, the bank operates more than 6,000 branches and 29,000 ATMs. BBVA stock tends to be perpetually cheap given its exposure to Spain, which is viewed as a struggling and unattractive market. However, its operations in Latin America can make up for that, given the sharply improving commodity price and economic outlook for several of those nations. BBVA stock, which closed at $4.61 on Aug. 3, is trading for less than six times earnings and offers a greater than 7% dividend yield on a trailing-12-month basis. That gives BBVA a strong valuation floor while offering considerable upside if and when sentiment picks up.
Matterport Inc. (MTTR)
Matterport is a recent special-purpose acquisition company, or SPAC, that surged to $30 at one point but has now fallen below the $5 mark. The company’s valuation was hard to justify at its prior peak, but shares are now worth a second look. Matterport’s business is in creating 3D models of buildings. Landlords can use these to create virtual property tours, help sell or rent out spaces to tenants, market hotels to potential guests, and so on. Matterport has several revenue streams ranging from selling camera hardware upfront to license and subscription revenues. The company has had a rocky year as it migrated toward a subscription business model, but the company has returned to growth now. Matterport is guiding to roughly $130 million in full-year revenues, making the current valuation at $1.3 billion seem like a reasonable entry point. The stock closed at $4.79 on Aug. 3.
Rigetti Computing Inc. (RGTI)
Rigetti Computing is another SPAC, like Matterport, that has plunged in value in recent months. Rigetti is seeking to commercialize quantum computing. This is when computers use quantum bits, rather than classical bits. Quantum computing scales in an exponential fashion, as opposed to the linear fashion of traditional computers. Rigetti believes this will allow the scientific and research fields to make decisive leaps forward in areas such as drug development, computer vision, hypersonic simulation and artificial intelligence. Rigetti is a high-risk stock, as it has little commercial revenue today. However, it collaborates with well-known partners such as the U.S. Department of Energy, the U.S. Air Force, the Lawrence Livermore National Laboratory and the Defense Advanced Research Projects Agency. With shares down from $10 to $4.31 as of Aug. 3, this could be a tremendous entry point if Rigetti is able to deliver on its initial promise.
UWM Holdings Corp. (UWMC)
UWM is one of the country’s largest mortgage brokers. It was also a SPAC. Thus, shares have suffered heavily both due to SPACs falling out of favor along with the concerns around the state of the housing market. With interest rates surging on new mortgages, the volume of business is likely to fall. In particular, there will be fewer refinancing transactions until interest rates settle down. However, the housing market will perk back up sooner or later. As things stand today, UWM earned 66 cents per share in 2021, which puts the stock at just about six times last year’s earnings. Analysts are forecasting 47 cents of earnings per share this year, which still leaves shares at a hardly excessive eight times earnings. It’s understandable why investors are nervous about any company related to the housing market given current economic conditions. However, UWM’s franchise should be worth more than $4 a share as soon as sentiment starts to improve.
YPF SA (YPF)
YPF is Argentina’s largest company by revenue and has been in the oil and gas business for nearly a century. The Argentine state controls 51% of the business, with outside shareholders owning the other 49%. YPF is a fully integrated operator. It produces, transports and refines its oil production along with meeting a large portion of Argentina’s natural gas demands. The company has made moves into adjacent fields as well, such as its YPF Luz renewable energy business. YPF is enjoying the rebound in oil and gas prices that has benefited the energy sector in general. However, it’s also a particular growth play given Argentina’s vast shale energy potential. YPF has grown its shale oil and shale gas production 3.6 times and 5.8 times, respectively, since 2017. And now with higher energy prices and shortages of those goods in other markets, YPF has a compelling opportunity to further grow its shale operations. Shares closed at $3.72 on Aug. 3.
7 best cheap stocks to buy now under $5:
— Vaalco Energy Inc. (EGY)
— Cementos Pacasmayo SAA (CPAC)
— Banco Bilbao Vizcaya Argentaria SA (BBVA)
— Matterport Inc. (MTTR)
— Rigetti Computing Inc. (RGTI)
— UWM Holdings Corp. (UWMC)
— YPF SA (YPF)
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Update 08/04/22: This story was published at an earlier date and has been updated with new information.