These stocks under $5 could be poised for sizable gains.
Bargain hunters have an opportune moment heading into this fall. The stock market is sliding once again, and a lot of companies have fallen below the $5 per share mark in recent weeks. For investors willing to go off the beaten path, there are a lot of intriguing bargains on offer within the cheap-stock universe. But discretion is required. 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 numerous companies that make for worthwhile investments below the $5 threshold. Here are nine such cheap stocks to buy now for less than $5.
Ambev SA (ticker: ABEV)
Ambev is the Latin American operating division of global beer powerhouse Anheuser-Busch Inbev SA (BUD). Ambev primarily sells Anheuser-Busch Inbev beers in Brazil, Argentina and other South American countries. A lot of investors have a negative view of the parent company due to its large debt load and slow growth. However, Ambev doesn’t have those same problems. For one, craft beer hasn’t taken nearly the same toll on market share in Latin America as it has in more wealthy economies. For another, Ambev maintains a strong balance sheet with minimal long-term liabilities, giving it far more financial flexibility than its corporate parent. Ambev shares are trading for less than 20 times forward earnings. In addition, the upcoming World Cup should serve as a catalyst to get bar and restaurant spending patterns back up toward pre-pandemic levels in South American countries. Ambev shares closed at $2.93 on Sept. 6.
Mizuho Financial Group Inc. (MFG)
Mizuho is one of the three largest banking franchises in Japan. In theory, this should be an enviable position, holding substantial market share in one of the world’s richest and most technologically advanced economies. However, Japan has faced numerous recessions and deflationary stagnation since the early 1990s. Japan’s central bank has set interest rates at or near zero for many years, leaving the banks to earn meager profit margins. This could all be about to change, however. The surge in inflation around the world may finally force Japan into a higher-interest-rate environment, which would be a welcome development for Mizuho. The slump in the value of the Japanese yen also makes shares more attractive for American investors. On top of that, Mizuho is trading at just 7 times forward earnings while offering a 5.8% dividend yield. Shares closed at $2.26 on Sept. 6.
UWM Holdings Corp. (UWMC)
UWM is one of the country’s largest mortgage brokers. The slowing housing market and the collapse of the SPAC boom have combined to make UWMC stock a terrible performer over the past year. The worries around the housing market are certainly valid. Thirty-year mortgage rates have topped 6% in many areas, and home prices are turning downward in various regional markets. However, housing is a cycle and will turn back up in due time. As things stand today, UWM earned 66 cents per share in 2021, which puts the stock at just about 6 times last year’s earnings. Analysts are forecasting 40 cents of earnings per share this year, which still leaves shares at a hardly excessive 9 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 $3.51 per share once sentiment starts to improve.
Telefonica SA (TEF)
Telefonica is a multinational telecommunications company. It is based in Spain and generates roughly 30% of its business there. However, it is also a large player in continental Europe, Brazil and Spanish-speaking South America. Those latter markets are particularly exciting thanks to favorable demographics and the upturn in economic activity in Latin America as of late. It also helps diversify the company away from the European market, which is viewed as stagnant and facing severe macroeconomic headwinds. However, phone service is still a vital good, and it’s unlikely that a significant number of consumers will stop paying, even during a recession. Telefonica shares, which closed at $3.94 on Sept. 6, are trading for about 12 times forward earnings and offer a greater than 7% dividend yield.
Cemex SAB de CV (CX)
Cemex is a Mexico-based building materials company. It is the world’s No. 5 producer of cement, and also churns out other related products such as concrete and aggregates. Cemex operates in more than 50 countries and garners the vast majority of its sales from the U.S. and other international markets. Like so many other companies tied to the housing sector and the economy, Cemex shares have plunged over the past year. Investors expect the company’s earnings to lose significant momentum, and that’s probably going to prove true. However, shares are going for less than 8 times forward earnings, which is a bargain. And Cemex has competitive advantages. Being based in Mexico lowers many costs related to labor and overhead. Additionally, having access to North American natural gas keeps electricity costs low, giving Cemex a big edge over peers operating out of countries with less secure energy markets. Cemex shares closed at $3.80 on Sept. 6.
IronSource Ltd. (IS)
IronSource is a small technology company focused on mobile advertising. IronSource is consistently profitable. Analysts expect the company to earn 21 cents per share this year, which puts the stock at less than 20 times earnings. These solid earnings give IronSource a floor compared to other struggling tech stocks. Adding to that, Unity Software Inc. (U) is seeking to acquire IronSource for 0.1089 share of U stock per share of IronSource. With Unity at $41 per share, this offer puts IronSource’s valuation at $4.46 per share, a premium to the $3.78 market price as of Sept. 6. This puts IronSource stock in a favorable position. If the Unity deal closes, IronSource shareholders should see a double-digit-percentage gain over a short period of time. And if the deal fails, IronSource has some value due to its strong earnings and because its shares are already down 60% from the firm’s SPAC offering price.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is one of Colombia’s three largest banking and financial groups. The three combined control nearly 70% of the Colombian banking market, which leads to favorable economics. Competition is limited, leading to high interest margins and the ability to control marketing and operational costs. In addition to core banking, Aval also has operations in insurance, pensions, infrastructure investments and more. Colombia’s economy is booming, as it is an oil-producing country and the price of oil has surged. The country’s gross domestic product grew an astonishing 12.6% year over year in the second quarter of 2022. Despite the strong economic growth and improving outlook, Aval’s shares have sunk this year due to concerns around the new government in country. That is a risk, to be sure, but with the stock trading at less than 5 times earnings during an economic boom, the valuation more than accounts for political risk. Shares closed at $2.93 on Sept. 6.
Rigetti Computing Inc. (RGTI)
Rigetti Computing is an early stage tech company seeking to commercialize quantum computing. This is when computers use quantum bits, rather than classical bits. 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 has plenty of potential, but its lack of near-term revenue has led to investor skepticism. However, it collaborates with well-known federal 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 $2.29 as of Sept. 6, this could be a tremendous entry point if Rigetti is able to deliver on its initial promise.
Matterport Inc. (MTTR)
Matterport is a recent SPAC that surged to $30 at one point but has now slipped to just over $4 per share. Matterport’s valuation got ahead of itself at the peak, but the company does have an intriguing business model and substantial revenue to support its development. Matterport’s business is 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. Matterport is on pace for about $130 million of revenue in 2022, and analysts see that figure growing at more than 30% per year in 2023 and 2024. This could make the company’s current $1.2 billion valuation quite a decent entry point as 3D modeling and metaverse applications pick up steam. Shares closed at $4.24 on Sept. 6.
9 best cheap stocks to buy under $5:
— Ambev SA (ABEV)
— Mizuho Financial Group Inc. (MFG)
— UWM Holdings Corp. (UWMC)
— Telefonica SA (TEF)
— Cemex SAB de CV (CX)
— IronSource Ltd. (IS)
— Grupo Aval Acciones y Valores SA (AVAL)
— Rigetti Computing Inc. (RGTI)
— Matterport Inc. (MTTR)
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Update 09/07/22: This story was published at an earlier date and has been updated with new information.