Pick up these nine stocks while they’re still available for less than $5.
Stocks finally broke their losing streak with October delivering robust gains for most of the major indexes. While the rally was a relief for investors, many companies remain far behind in year-over-year comparisons. For more speculative and volatile stocks, there hasn’t been much recovery yet. The silver lining is that there are still a ton of stocks trading for less than $5 per share with a strong chance of recovering once economic conditions improve. Investors should use extra caution and due diligence when trading in low-priced stocks, as risks tend to be higher. That said, rewards can be tremendous when these low-priced stocks turn the corner. These nine sub-$5 stocks offer plenty of promise heading into 2023.
Paysafe Ltd. (ticker: PSFE)
Paysafe is, as the name would suggest, a payments firm. The company began as a way to connect customers with emerging online businesses such as video gaming companies and digital subscription services. Over the years, Paysafe has moved into a wide variety of payments fields. Perhaps the most promising is digital gaming, as there is a need for creating reliable money transfer methods and digital wallets serving these fast-growing markets. The speed of adoption of gambling on the NFL in particular should give Paysafe a persistent tail wind for generating new business. On the downside, Paysafe has struggled to produce positive net income. Shares are down more than 80% since going public in late 2020. Private equity firms Blackstone and CVC Capital Partners previously bought Paysafe for $3.9 billion in 2017. Now, Paysafe is valued at less than $1 billion.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is not your typical stock that seems risky due to an unproven business model or inadequate profitability. Rather, it’s risky because it is Colombia’s largest banking conglomerate. The country’s market is unstable following the election of President Gustavo Petro, who has laid out plans to limit oil and mining production, increase regulation on large financial institutions and possibly introduce capital controls to shore up the sliding Colombian peso. Foreign investors have, understandably, sold their Colombian assets with haste. However, similar leftward swings in Mexico and Peru have happened without financial systems crumbling. Investors who bought those dips were richly rewarded. Now down from highs of more than $8 in 2020 to a close of $2.07 on Nov. 2, Aval shares are trading at about four times forward earnings while offering a 24% dividend yield. That’s a more than generous offer for Colombia’s largest and most profitable bank.
Aenza SAA (AENZ)
Aenza is the largest construction and engineering firm in Peru, and it also works on projects in other South American countries, such as Colombia and Chile. Aenza has a broad scope: Its projects include the Lima metro system in addition to building tunnels, mines, airports and commercial real estate buildings. The firm’s fortunes tumbled a few years ago when its partner on a deal, Brazilian firm Odebrecht, was caught in a bribery scandal. Aenza has replaced its management team and refocused operations in the wake of that incident. Things should be looking up for the company thanks to sharply higher commodity prices. Peru’s largest exports are metals, such as copper and gold, which benefit from current inflationary conditions.
Ambev SA (ABEV)
The World Cup is set to kick off later this month, and the event marks a time for partying around much of the globe — particularly in South America. Soccer powerhouses, including Argentina and Brazil, enter the competition with high expectations. That should carry over to Ambev, which is the South American arm of global brewing powerhouse Anheuser-Busch InBev SA (BUD). Ambev has been slow to bounce back from the pandemic, in part due to lingering COVID-19 restrictions and local cultural preferences for consuming beer at bars and restaurants rather than at home. However, the World Cup should mark a shift in consumption patterns. Ambev is reasonably priced, selling at just 23 times forward earnings even as earnings have been depressed for the time being. Also, Ambev has a tremendous balance sheet; it maintains a net cash position. This gives it flexibility to pursue growth opportunities.
AvePoint Inc. (AVPT)
AvePoint is a software company that focuses on helping customers integrate, build and maintain their data and operations within the Microsoft Corp. (MSFT) 365 ecosystem. Many Fortune 500 companies are transitioning parts of their operations from on-site servers to Microsoft’s cloud. AvePoint helps make this transition seamless, and it also offers ongoing solutions such as data monitoring and security for customers once they are set up with Azure and Microsoft 365. Investors initially thought this might be too niche of a business to justify a significant valuation. However, as Azure continues to grow at tremendous speed, it has broadened the opportunity set for key Microsoft support vendors such as AvePoint. Shares of AvePoint trade at a substantial discount to most other cloud services companies, and the firm has a large cash balance that should help it ride out the current tech market slump.
ContextLogic Inc. (WISH)
ContextLogic is an app-based e-commerce company focused on bargain hunting. The company’s value proposition is that it offers a digital treasure hunt environment. This worked for a while, and ContextLogic enjoyed tremendous growth during the pandemic as people shopped from home. However, the business model fell apart in 2021 when traditional shopping venues reopened. Also, the price of digital advertising increased as many competing businesses reopened and started buying ad slots. This forced ContextLogic to slash its advertising budget and its sales collapsed. Now, the company is changing strategic direction and looking for a new CEO. What makes it interesting is that the firm has about $950 million of cash and marketable securities versus a market capitalization of just $490 million. This means ContextLogic is selling at a substantial discount to the value of just its cash. This could set the stage for a significant rally on any sort of improved operational results or business pivot.
Agora Inc. (API)
Agora is another firm in a similar situation to ContextLogic. Agora had $641 million of cash and short-term investments on hand as of June 30, 2022. Against that, the company’s market capitalization is just $356 million. Agora, for those unfamiliar, is a Chinese tech firm with a real-time engagement platform that powers interactive social communities such as online classrooms and chat forums. The company rose to prominence in 2020 as a key customer, audio social network Clubhouse, was exploding in popularity. Clubhouse eventually faded away, however, as Twitter’s Spaces overtook it. With that, along with the general sell-off in both tech stocks and Chinese stocks, Agora’s stock price plummeted from more than $100 to close at $2.88 on Nov. 2. Agora’s core business is currently losing money, but not at a terrible rate. With its huge cash balance, the company has time to recover.
Bark Inc. (BARK)
Bark is a direct-to-consumer pet products company. The firm was originally known as Barkbox and built its reputation through selling subscription boxes to consumers. Each box contains a variety of goodies, such as dog toys. Investors had viewed the toy box idea as rather niche. Bark has addressed that by expanding into subscription pet food and wellness offerings. These, if successful, should greatly increase Bark’s addressable market. Unfortunately, this growth takes time, and right now, the market isn’t being patient. Bark also went public via a special-purpose acquisition company, or SPAC. As a result of these factors, Bark shares are down more than 90% from their highs. Bark has struggled to become profitable, and pet spending has slowed after the record numbers seen during the pandemic. Still, there’s a good business plan here, and this brand should be worth multiples of today’s price once management can reach consistent profitability.
Rackspace Technology Inc. (RXT)
Rackspace is an enterprise infrastructure company. Investors may remember the name from a decade ago, when it was a hot stock. However, private equity firm Apollo bought Rackspace in 2016. Rackspace came back to public markets with a new initial public offering in 2020, but its second run as a publicly traded firm has been less successful. Shares are down from more than $25 in mid-2021 to $4.81 as of market close Nov. 2. Investors are not as enthused about its prospects now, as cloud hosting has become a legacy commodity business and thus has lower profit margins. However, Rackspace has continued to innovate and now has a fast-growing unit with its cloud services. This helps firms that have more complicated setups across multiple public clouds. Rackspace’s legacy business is highly profitable. Shares trade at about 17 times forward earnings, making it a value play and ensuring that the company has resources to fund its future growth ambitions.
9 best cheap stocks to buy under $5:
— Paysafe Ltd. (PSFE)
— Grupo Aval Acciones y Valores SA (AVAL)
— Aenza SAA (AENZ)
— Ambev SA (ABEV)
— AvePoint Inc. (AVPT)
— ContextLogic Inc. (WISH)
— Agora Inc. (API)
— Bark Inc. (BARK)
— Rackspace Technology Inc. (RXT)
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9 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 11/03/22: This story was published at an earlier date and has been updated with new information.
