As of August 2023, there were about 1,800 stocks listed on the major American exchanges that were trading for less than $5 per share. It might seem daunting trying to sift through such a large pile of cheap stocks to find the proverbial needle in the haystack.
Most firms that end up in penny stock territory have seen something dramatic go wrong. The business model has broken down, management made major errors or the balance sheet is in bad shape. Investors should exercise additional prudence when buying low-priced stocks.
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However, there are some gems to be found among the low-priced stocks. These nine top cheap stocks to buy have resilient businesses and tantalizing upside if things go well for them over the next year and beyond:
— Banco Santander SA (ticker: SAN)
— Ambev SA (ABEV)
— MaxCyte Inc. (MXCT)
— Grupo Aval Acciones y Valores SA (AVAL)
— Latham Group Inc. (SWIM)
— Olaplex Holdings Inc. (OLPX)
— Enel Chile SA (ENIC)
— Sabre Corp. (SABR)
— Agora Inc. (API)
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.
Santander has had a rough go of it. The 2008 financial crisis slammed the Spanish banks as Spain’s housing market imploded. Continuing economic weakness in Europe throughout the 2010s didn’t help matters. Europe’s economy is picking back up now, though. Additionally, Santander has a whole chain of foreign subsidiaries including its crown jewel, Santander Mexico. The current surge in economic activity in Latin America should give SAN stock a boost. Even after a sizable rally this year, Santander shares are still selling for less than six times forward earnings.
Ambev SA (ABEV)
Ambev is the South American division of global brewing giant Anheuser-Busch InBev SA/NV (BUD). AB-InBev is out of favor at the moment due to its excessive debt and various marketing missteps. Thankfully, these issues aren’t a concern for its Ambev subsidiary. Ambev holds a net cash position, and competition isn’t nearly as fierce in the South American beer market as compared to the United States. The current uptick in the Brazilian economy — a key Ambev market — should also be favorable for ABEV stock.
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 4.8%. That should mark a fine entry point and valuation for this powerhouse of beer.
MaxCyte Inc. (MXCT)
MaxCyte is a cellular engineering firm whose proprietary platform allows clients to modify cells. This technology could be used in a variety of fashions such as in crafting cell-based therapies and in the creation of new drugs. MaxCyte serves as a picks-and-shovels play on the biotech industry. It provides a key technology to biotech and pharma firms, and MaxCyte can earn potential royalty streams on anything created that involves its technology.
MaxCyte isn’t just a science project; it has already developed substantial commercial operations. The company’s revenues have leapt from $17 million in 2018 to $44 million last year. Analysts see that rising to more than $60 million next year. MaxCyte isn’t profitable yet, and there are no guarantees about how far its cell editing technology can ultimately reach. But the platform has already attracted a wide range of clients and is showing consistent growth, making this $4 stock an intriguing speculative health care play.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is one of Colombia’s large financial groups. Aval, along with two other Colombian banks, make up close to 70% of the domestic market. This concentration means that competition is limited, and the industry is highly profitable. Aval’s founder and majority shareholder, Luis Carlos Sarmiento, has a net worth of nearly $10 billion and became Colombia’s wealthiest person thanks to how he’s managed Aval over the years.
AVAL stock crashed in recent years as the Colombian economy slumped during the pandemic and then was further hit when that nation elected a socialist president in 2022. However, that president’s administration has become broadly unpopular after a series of corruption scandals. These developments should ensure that the pro-business status quo hangs on despite the left-wing government. Meanwhile, with the prices of oil and other commodities being fairly strong, Colombia’s exports should perk up. All this makes Aval a deep value with shares down more than 60% from their 2019 levels and selling at a discount to book value.
Latham Group Inc. (SWIM)
Latham is a designer and manufacturer of in-ground swimming pools. It operates under various brand names including Latham, Narellan, CoverStar and GLI. The firm was a huge winner over the past couple of years as people installed pools for recreation during the stay-at-home period. Latham’s revenues surged from $318 million in 2019 to $696 million last year. However, as the economy has reopened, demand for pools has declined to a degree; analysts see Latham’s revenues slipping to $583 million this year. That’s still way above pre-pandemic levels, but investors have given up on SWIM stock regardless. Shares peaked above $30 in 2021 and go for less than $5 today. That seems like an overreaction. Latham remains profitable even during the present drop in demand. Over the long haul, analysts forecast a relatively high level of new home construction thanks to favorable demographics. That, in turn, should provide renewed demand for Latham’s pool supplies.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
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 worked well in categories such as apparel, so it was only natural to extend this to hair products as well. Olaplex enjoyed tremendous initial success, growing revenues from $148 million in 2019 to $704 million in 2022.
That said, some marketing missteps and changing consumer behavior have interrupted the growth story. Analysts are forecasting a roughly 35% decline in revenues this year. Even so, Olaplex remains highly profitable; shares are selling at an estimated 10.4 times forward earnings. If the company can get its marketing outreach back on track, shares could be set for a swift rebound.
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. 2023 has reversed that entirely, however. The stock has now tripled off the lows as both the weather and local economic conditions have been brighter.
In the longer term, Enel Chile is well positioned. It is a global leader in going green thanks to Chile’s large hydroelectric sector and favorable geography. Northern Chile has some of the highest solar irradiation in the world, meaning that solar plants can be unusually efficient and profitable when situated there. And, on the demand side, Chile should see an economic boom thanks to its massive copper and lithium reserves. These should prove integral in creating the batteries needed to power the electric vehicle revolution.
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 has a huge amount of debt, and shares collapsed with the onset of the pandemic. Investors wondered whether the company would even survive. However, Sabre is now on the mend. Shares rallied roughly 25% following its most recent earnings report in which the company showed stronger-than-expected revenue growth and a solidly positive adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, figure. With global travel in a boom, Sabre’s operations are looking better.
While the stock is still down more than 70% from where it was prior to 2020, that could change in a hurry if Sabre can string together a couple more positive earnings reports in a row. In fact, while at the time this was written SABR was trading for less than $5, the stock has since rocketed higher and been the recipient of glowing analyst commentary following an impressive quarter. “We plan to lift our $8.50 fair value estimate toward $9 per share to account for higher air booking fees,” wrote Dan Wasiolek, senior equity analyst for Morningstar.
Agora Inc. (API)
Agora is an engagement platform-as-a-service that gives clients the ability to embed live audio, streaming, chat, whiteboards and other interactive functions into apps. Agora rose to prominence serving as the infrastructure backboard for Clubhouse and other apps that came on the scene several years ago. The bull case for Agora is simple; shares are currently trading at a sharp discount to the firm’s cash balances. Today, Agora has a market cap of around $310 million, whereas it had $416.5 million of cash and short-term investments on hand as of March 31.
This means that investors are valuing the operating software business at around negative $100 million. It wouldn’t take a whole lot for folks to bump up Agora’s valuation to at least equal that of its cash, if not a significant premium to that. It’s true that many social media and live chatting apps have fallen out of favor recently. Still, Agora is generating $150 million a year in revenue and its operating losses are small. Upside could be tremendous here with any meaningful improvement in the business or sentiment.
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9 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 08/10/23: This story was previously published at an earlier date and has been updated with new information.
