These sub-$5 stocks may have major upside.
A rocky stock market in 2022 has dragged down the prices of many high-quality stocks and created a handful of opportunities for long-term investors to scoop up cheap shares. Unfortunately, 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 may be some hidden gems to buy on the dip as well. Here are nine cheap stocks to buy now for under $5, according to Morningstar.
Lloyd’s Banking Group PLC (ticker: LYG)
Lloyd’s Banking Group is a diversified bank and insurance provider based in the U.K. Analyst Niklas Kammer says higher loan-loss provisions weighed on the bank’s overall performance in the third quarter, but its underlying performance was solid. Income generation was up 13% compared to operating expense growth of just 9%. Kammer says the benefits of rising interest rates are outweighing the pressures of a slowing economy. He says Lloyd’s is a low-risk investment in one of the strongest retail banking businesses in the U.K. Morningstar has a “buy” rating and $3.80 fair value estimate for LYG stock, which closed at $2.24 on Dec. 7.
Banco Bradesco SA (BBD)
Banco Bradesco is one of Brazil’s largest banks. Analyst Michael Miller says higher credit costs weighed on Banco Bradesco’s profits in the third quarter, and the bank’s fee-based income growth also stagnated in the quarter. However, Miller says Brazil is making significant progress in reducing inflation, and Banco Bradesco has benefited from rising interest rates. He says Bradesco has a strong balance sheet and could significantly expand net interest margins, but the stock is not for the faint of heart given the risks and challenges it faces. Morningstar has a “buy” rating and $4 fair value estimate for BBD stock, which closed at $2.85 on Dec. 7.
Telefonica SA (TEF)
Telefonica is the largest Spanish telecommunications company. Analyst Javier Correonero says Telefonica is effectively navigating a difficult inflationary environment in 2022. The fact organic sales grew 3.8% in the third quarter and 4.1% through the first nine months of the year is a testament to the company’s management. Correonero says Germany remains a strong point for Telefonica, including 6% organic German revenue growth in the third quarter. He is bullish on Telefonica’s strategy of divesting infrastructure assets and exiting the underperforming Latin American market. Morningstar has a “buy” rating and a $4.90 fair value estimate for TEF stock, which closed at $3.64 on Dec. 7.
Nomura Holdings Inc. (NMR)
Nomura is Japan’s largest investment bank and brokerage. Analyst Michael Makdad says Japanese brokers endured a disappointing third quarter, but Nomura shares are undervalued given the company is making progress in prioritizing recurring revenue and mitigating financial risk. Makdad says Nomura has a valuable brand in Japan thanks in part to its long-term relationships with high net worth customers. He estimates Nomura’s domestic retail and asset management businesses have historically generated return on equity rates of above 10%, but says the company needs to expand digital offerings. Morningstar has a “buy” rating and $4.40 fair value estimate for NMR stock, which closed at $3.58 on Dec. 7.
Rolls-Royce Holdings PLC (RYCEY)
Rolls-Royce Motor Cars is now a wholly owned subsidiary of BMW, but Rolls-Royce Holdings designs and produces power systems used in aviation and other industries. Analyst Joachim Kotze says the divestment of ITP Aero allowed Rolls-Royce to repay $2.4 billion in loans, but it needs to continue to improve its balance sheet. While Rolls-Royce claims electric planes and small modular nuclear reactors will be long-term growth sources, Kotze says the company’s medium-term prospects hinge on the performance of its civil aerospace segment. Morningstar has a “buy” rating and $1.40 fair value estimate for RYCEY stock, which closed at $1.08 on Dec. 7.
Telecom Italia SPA (TIIAY)
Telecom Italia is the leading fixed-line and wireless telecommunications provider in Italy. The company plans to split off its network business into a separate company. Correonero says Telecom Italia’s performance in Italy has been poor, including a 3.5% drop in service revenue in the third quarter. However, he says the company’s Brazil business has been impressive. Correonero says the company’s top priority at this point should be reducing its debt load and interest payments, potentially by selling its valuable data center assets. Morningstar has a “buy” rating and $2.80 fair value estimate for TIIAY stock, which closed at $2.08 on Dec. 7.
SCOR SE (SCRYY)
SCOR is an independent, global Tier 1 reinsurance company headquartered in France. Analyst Henry Heathfield says SCOR has had a difficult first three quarters of 2022, including heavy net losses and excess reserve releases. However, life and health reinsurance gross written premiums are up 2% year to date, and Heathfield says SCOR is rebalancing its portfolio to focus on “health and longevity.” Gross written premiums in the first nine months of 2022 were up 6.2% year over year, including 15.8% constant-currency growth within the property and casualty segment. Morningstar has a “buy” rating and $2.60 fair value estimate for SCRYY stock, which closed at $2.05 on Dec. 7.
Tilray Brands Inc. (TLRY)
Tilray Brands is a Canadian legal cannabis producer and leading global cannabis lifestyle and consumer packaged goods company. Analyst Kristoffer Inton says Tilray’s fiscal first quarter was its 14th consecutive quarter of positive adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA. Tilray shares got a boost in October when U.S. President Joe Biden pardoned federal-level marijuana possession offenses. The U.S. market hasn’t been the growth source Canadian cannabis companies had hoped up to this point, but Inton says he still anticipates 37% full-year revenue growth for Tilray. Morningstar has a “buy” rating and $12 fair value estimate for TLRY stock, which closed at $3.71 on Dec. 7.
VNET Group Inc. (VNET)
VNET is a leading carrier-neutral internet and data center services provider in China. The stock jumped 29% in September when founder Josh Sheng Chen proposed taking VNET private, and the stock rallied again in October when Bloomberg reported private equity firms CHD Investments and PAG are each considering their own bids for VNET. Despite regulatory crackdowns on U.S.-listed Chinese stocks sending VNET shares down more than 50% in the past year, analyst Dan Baker says VNET is undervalued and continues to fund new data center projects. Morningstar has a “buy” rating and $8.60 fair value estimate for VNET stock, which closed at $4.85 on Dec. 7.
9 best cheap stocks to buy under $5:
— Lloyd’s Banking Group PLC (LYG)
— Banco Bradesco SA (BBD)
— Telefonica SA (TEF)
— Nomura Holdings Inc. (NMR)
— Rolls-Royce Holdings PLC (RYCEY)
— Telecom Italia SPA (TIIAY)
— SCOR SE (SCRYY)
— Tilray Brands Inc. (TLRY)
— Vnet Group Inc. (VNET)
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9 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 12/08/22: This story was published at an earlier date and has been updated with new information.
