It can be a challenge looking for good cheap stocks. It’s a huge pile to sift through. As of the end of June, there were more than 1,850 stocks listed on the major American exchanges that were trading for $5 per share or less.
Most companies that end up trading for less than $5 have at least one 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. Most cheap stocks have some sort of serious issue, and investors should use prudence when bargain-hunting in penny stock territory.
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That said, there can be some diamonds in the rough. The stock market has had a fantastic first half of 2023, with historic gains for the Nasdaq in particular. These low-priced stocks could benefit from bullish conditions heading into the back half of the year:
— Planet Labs PBC (ticker: PL)
— Ardagh Metal Packaging SA (AMBP)
— Ambev SA (ABEV)
— Enel Chile SA (ENIC)
— Turkcell Iletisim Hizmetleri AS (TKC)
— Grupo Aval Acciones y Valores SA (AVAL)
— Olaplex Holdings Inc. (OLPX)
— Sabre Corp. (SABR)
— Banco Santander SA (SAN)
Planet Labs PBC (PL)
Planet Labs is a satellite imagery company founded by former NASA scientists. Earth imaging is a promising field that aims to improve efficiency in a variety of industries around the globe. The idea is that Planet Labs takes satellite imagery of the whole planet every day. It has the highest frequency of images out of its peer group, making it the go-to destination for getting fast-changing intelligence. This can apply to fields such as shipping, mining, agriculture, disaster response and many others.
This sort of remote monitoring of the environment and industrial assets allows better precision for activities such as fertilizing or forest management, while also reducing the number of on-site visits that asset owners have to make to their properties. Planet Labs is still early in its growth trajectory and is losing money. However, the company has nearly $400 million in cash and short-term investments on hand, giving it ample runway to reach profitability in the space industry one day.
Ardagh Metal Packaging SA (AMBP)
Ardagh Metal Packaging manufactures containers for beer, soft drinks, juices, wines and other beverages. It operates primarily in Europe, the United States and Brazil. Ardagh went public via a special-purpose acquisition company, or SPAC, in August 2021, leading to investor scrutiny as many SPACs have lost value following their initial public offerings. A subsequent spike in the price of raw materials pressured the firm’s profit margins as well. The company’s outlook appears to be improving, however, as inflationary pressures have started to let up. Ardagh has a mountain of debt, which could be a problem if the economy slumps. In a “soft landing” scenario where Ardagh’s profits pick up, the positive leverage could lead to explosive stock price gains.
Shares are going for just 11 times estimated forward earnings. The company also pays an outsized 11% dividend yield, though that could come under pressure if the firm’s earnings decline. Regardless, shares seem cheap on the balance and the risk/reward picture favors a bullish outlook.
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, its subsidiary Ambev has been a more attractive business. A big element of that success is market preferences: Craft beer hasn’t presented the same threat to the macrobrewers in South America as it has in established markets. Also, Ambev has a strong balance sheet that includes a net cash position. That’s a stark contrast to AB-InBev, which has struggled to deal with its excessive long-term debt.
Ambev shares are also outright cheap for such a stable company, as the stock sells for approximately 16 times forward earnings. On top of that, Ambev offers a dividend yield of 4.7%. That should mark a fine entry point and valuation for this powerhouse of beer.
Enel Chile SA (ENIC)
Enel Chile is a major Chilean electricity producer and distributor. Shares were hit by a perfect storm over the past few years as a combination of drought, economic weakness and unfavorable Chilean politics caused shares to plummet from $5 to $1. However, Enel Chile is clearly back on the upswing; shares have tripled off the lows over the past year as both Chilean weather and politics have become more promising in recent months. Even after the big rebound in the share price, Enel Chile stock still sells for less than three times trailing earnings.
Enel Chile should be poised to profit as the Chilean economy returns to rapid growth after a prolonged slump. Chile benefits from rising commodity prices for key exports such as copper, precious metals, and fresh fruit and fish. The country also has one of the world’s largest lithium reserves, making it a major player in the burgeoning electric vehicle supply chain.
[2023’s 10 Best-Performing Stocks]
Turkcell Iletisim Hizmetleri AS (TKC)
Turkcell is a leading telecom operator in Turkey and several other European nations such as Ukraine and the Netherlands. Turkcell’s Ukrainian business faces pressures due to the ongoing war. Meanwhile, the core Turkish market has struggled under the weight of an out-of-control spike in inflation, a harsh devaluation of the Turkish lira, and general economic mismanagement in that country.
Regardless, internet and telecom are essential services, and people keep paying their bills regardless of broader macroeconomic conditions. Turkcell has also been on a major spending spree to deploy fiber and 5G capacity at scale, which should lead to rising profitability over time. As things stand today, thanks to the recent economic jitters in Turkey, TKC stock trades for about 13 times trailing earnings while offering a 2.2% trailing dividend yield.
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 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. Colombian banks on average earn returns on equity in the high teens, which is far above developed-market banks that tend to run closer to 10% to 12%.
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, recent political scandals have caused the president’s ruling coalition to disintegrate. As a result, the Colombian peso has surged, becoming a top-performing emerging market currency in 2023 to date. AVAL stock hasn’t rallied as much as other Colombian equities and is still a bargain at about six times forward earnings. The company also makes generous monthly dividend payments for a forward yield of 4.2%.
Olaplex Holdings Inc. (OLPX)
Olaplex sells hair care products to both individual consumers and licensed beauticians. The firm’s initial key innovation was to rely on 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 a while, it was working tremendously: Olaplex grew its revenues from $148 million in 2019 to $704 million in 2022. Unlike many fast-growing companies, this was all profitable growth. To that point, Olaplex sells for just 13 times trailing earnings.
However, Olaplex’s profits are projected to decline in 2023 and shares are down more than 70% over the past year. Analysts fear that the business model may be broken. If and when growth returns as shopping patterns normalize going forward, Olaplex could be set for a massive rebound.
Sabre Corp. (SABR)
Sabre is one of the three primary global distribution systems. GDS platforms serve as a marketplace for displaying and selling transportation tickets for services such as airlines, cruise lines and passenger railroads, and they operate virtually everywhere except China, which has a different marketplace. Sabre stock crashed from about $20 and now trades for less than $4 as the pandemic dealt a terrible blow to this business. This was magnified by the company’s untimely choice to take on additional debt to upgrade its information technology platform just before the onset of COVID-19.
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 upward trajectory.
Banco Santander SA (SAN)
Banco Santander is a large, Madrid-based banking franchise. In addition to its Spanish operations, Banco Santander has a sizable footprint across Latin America, making it a diversified option for investors seeking more exposure to markets such as Mexico, Chile and Colombia.
Investors cast Santander in the “bad bank” category after its rough times during the 2008 financial crisis. The lingering economic problems in Europe in the 2010s didn’t help matters either. However, Santander’s position has greatly improved in recent years, and the upturn in commodity prices and manufacturing activity in Latin America should lead to more robust profits in those markets as well. Santander has ample excess capital and has now started aggressively repurchasing its shares over the past year. Even with the rally this year — the stock is up 25% year to date through July 5 — Santander shares still go for less than six times forward earnings.
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9 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 07/06/23: This story was published at an earlier date and has been updated with new information.
