It can be a challenge looking for good cheap stocks. After all, there are currently more than 1,800 stocks listed on the major American exchanges trading for $5 per share or less. Most companies that end up under $5 have some major fundamental problem. Maybe their industry is in a major bust, or management took on too much debt, or perhaps the company never managed to reach sustainable profitability in the first place. In any case, most cheap stocks have a serious issue, and investors should use prudence when bargain-hunting in penny stock territory.
That said, there can be some diamonds in the rough. In particular, with the market now surging, these affordable low-priced stocks could be set for major gains in the back half of 2023.
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Here are nine of the best cheap stocks to buy now:
— Grupo Aval Acciones y Valores SA (ticker: AVAL)
— Lumen Technologies Inc. (LUMN)
— Terran Orbital Corp. (LLAP)
— Ambev SA (ABEV)
— Agora Inc. (API)
— Olaplex Holdings Inc. (OLPX)
— Nokia Corp. (NOK)
— Sabre Corp. (SABR)
— Procaps Group SA (PROC)
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval Acciones y Valores is a Colombian holding company. Aval has a majority ownership position in four different Colombian banks. In aggregate, Aval’s properties make up roughly a quarter of the Colombian banking market. Due to the relatively low level of domestic competition, Colombian banks historically have earned high profit margins. Nowadays, the sector is trading at low levels due to political developments.
Colombia elected a left-wing president in 2022, and he proposed radical reforms to the economy which could have significantly hampered Aval’s profitability. However, a series of recent political scandals has caused the president’s ruling coalition to disintegrate. As a result, the Colombian peso has surged, becoming the top-performing emerging market currency in 2023 to date. AVAL stock has rallied as well, but it is still a bargain at about seven times forward earnings and, the company makes generous monthly dividend payments. AVAL boasts a 4.1% dividend yield.
Lumen Technologies Inc. (LUMN)
Lumen Technologies, formerly known as CenturyLink, is a telecom company. The firm has struggled in recent years due to its wireline telephony business. There’s been a rapid decline in demand for traditional telephone lines due to technological advances. As a result, Lumen’s business has shrunk considerably: Revenues are down from $22.6 billion in 2018 to $17.5 billion last year.
However, with the stock down more than 90% over the past decade and more than 80% in the last year alone, Lumen’s share price already reflects these problems. Meanwhile, the company has brought in management that is focusing on the company’s more promising units like fiber broadband, which is growing at a nearly 20% annualized rate. Lumen has a ton of debt and faces challenges in trying to modernize its business. But at less than five times projected forward earnings, upside could be considerable if there are signs of operational improvements.
Terran Orbital Corp. (LLAP)
Terran Orbital is a company that designs and manufactures satellites. Space has become an increasingly attractive field thanks to increased investments and deal-making in the sector. Terran, for what it’s worth, has scored a $100 million investment from defense giant Lockheed Martin Corp. (LMT). And in February, Terran shares soared as much as 70% after it won a gigantic $2.4 billion contract with Rivada Space Networks. Under the terms of the deal, Terran will build 288 low-Earth-orbit satellites. That’s simply a massive amount of business for Terran, which has a roughly $225 million market capitalization today.
The issue is with profitability, or the lack thereof. The firm also will likely need to raise a lot more capital to expand its manufacturing capacity to fulfill the Rivada order. However, as Terran starts to generate far more revenue and deepens ties with key partners like Lockheed Martin, it may be able to start generating positive earnings per share as well.
Ambev SA (ABEV)
Ambev is the South American division of global brewing giant Anheuser-Busch InBev SA/NV (BUD). While AB-InBev has had its share of problems, especially as it relates to the Bud Light brand, Ambev has been a more attractive business. For one thing, beer hasn’t become a political football in Latin America the same way as it has in the U.S., and for another, craft beer is much less of a competitive threat in South America. In addition, Ambev has a great balance sheet and maintains a positive net cash position, helping insulate the company from near-term economic volatility.
Shares are also outright cheap for such a stable company, as the stock sells for less than 18 times forward earnings. On top of that, Ambev offers a dividend yield of 4.8% today. That should mark a fine entry point and valuation for this powerhouse of beer.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
Agora Inc. (API)
Agora is a technology company
that offers a real-time communications platform. This platform is used to support functions such as chat rooms, live video, voice and messages, and it allows these functions to work within applications. Agora became notable for powering a couple of popular apps, such as social-messaging service Clubhouse. However, Agora’s growth came to a halt as the pandemic-related surge in social media app usage reversed itself. Agora’s revenue fell slightly in 2022, and analysts expect an 8.5% decline this year.
Regardless, that still leaves Agora with $147 million in annual revenue. Meanwhile, the bullish argument for the stock is a simple one: Agora currently has a market capitalization around $310 million, yet had a cash balance of $416 million as of March 31. This means Agora is selling at a negative enterprise value, implying that the actual software business is going for a minimal value despite having a large revenue base and generating only modest losses.
Olaplex Holdings Inc. (OLPX)
Olaplex is a company focused on selling hair care products. It has both professional and consumer product lines. The firm’s innovation was to lean heavily into e-commerce and its own website rather than retail store distribution. Direct-to-consumer retail has proven wildly successful for firms like Nike Inc. (NKE) in recent years so it wasn’t a stretch to imagine that Olaplex could replicate this model for hair products. And for awhile, it was working tremendously; Olaplex grew its revenues from $148 million in 2019 to $704 million last year. Unlike many fast-growing companies, this was all profitable growth; indeed, Olaplex is selling for around 13 times trailing earnings.
However, 2023 has brought a break in this momentum with revenue expected to fall by double digits. Olaplex’s strategy is heavily reliant on social media influencers. That said, shares are down more than 75% over the past year, and the company could be just one or two ad campaigns away from turning its fortunes around.
Nokia Corp. (NOK)
It’s been many years since Nokia flip phones were a must-have consumer electronics product. But the business has hardly disappeared either. Nowadays, Nokia is connecting people through its cutting-edge networking infrastructure for applications such as 5G deployments. Nokia had been losing market share to both Telefonaktiebolaget LM Ericsson (ERIC) and Chinese rivals such as Huawei in recent years. However, moves by the U.S. and its allies to ban Chinese telecommunications equipment for national security reasons have given Nokia new life in key markets. Nokia has ridden that wave to renewed profitability; shares now go for around nine times forward earnings. Morningstar’s Matthew Dolgin believes Nokia’s fair value is $6.60 per share, which suggests that the stock has 64% upside from its June 7 close at $4.02.
Sabre Corp. (SABR)
Sabre is one of the three global distribution systems outside of China that have their own domestic systems. GDS platforms serve as a marketplace for displaying and selling transportation tickets for services such as airlines, cruise lines and passenger railroads. Sabre made the unfortunate decision to load up on debt in the late 2010s to massively upgrade its information technology systems to improve efficiency and reduce costs. Then the pandemic hit, leaving Sabre with a ton of debt and no cash coming in the door. As a result, Sabre’s stock plunged from $20 to less than $4 today.
The company has a mountain of debt. But there is an oligopoly-style business with strong economics under the surface. Sabre still faces a major challenge due to its balance sheet, but analysts forecast the firm will return to profitability in 2024. Sabre’s beleaguered shares could surge. That’s especially true if the global travel market continues its recent gains.
Procaps Group SA (PROC)
Procaps is a recent special-purpose acquisition company, or SPAC, that received a cold shoulder from the market after its debut. Unlike many SPACs, however, Procaps is already a reasonably large and successful business. It serves as a consumer health and wellness company, primarily selling vitamins, prescription drugs, over-the-counter medications and so on across Latin America. The company is based in Colombia and thus subject to some of the same political backdrop as Grupo Aval. However, vitamins and over-the-counter health products tend to be fairly recession-resistant. Procaps generates more than $400 million a year in revenues, which means the stock trades for just over one times revenue. Shares also sell for about 13 times trailing earnings. With the rapid rebound in the Colombian peso and investor sentiment, Procaps shares could be set for a swift move back above the $5 mark.
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9 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 06/08/23: This story was previously published at an earlier date and has been updated with new information.
