As of the first week of September 2023, there were 1,854 stocks listed on the major American exchanges that were trading for $5 per share or less. It might seem daunting trying to sift through such a large pile of low-priced stocks to find the proverbial needle in the haystack.
[Sign up for stock news with our Invested newsletter.]
Most firms that end up in penny stock territory have seen something go dramatically wrong. The business model has broken down, management has made major errors or the balance sheet has fallen into disrepair. Investors should exercise additional prudence when buying these sorts of cheap stocks.
While most sub-$5 stocks probably won’t work out over the long haul, these nine top cheap stocks have the fundamentals and positive outlook needed to deliver large gains for shareholders going forward:
— Banco Santander SA (ticker: SAN)
— Ambev SA (ABEV)
— Grupo Aval Acciones y Valores SA (AVAL)
— Enel Chile SA (ENIC)
— Ardagh Metal Packaging SA (AMBP)
— Planet Labs PBC (PL)
— Matterport Inc. (MTTR)
— Latham Group Inc. (SWIM)
— Traeger Inc. (COOK)
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.
While the European economy remains a mixed bag, other divisions are performing better. Santander Mexico in particular is a bright spot. Mexico’s economy is enjoying a manufacturing boom as multinational firms such as Tesla Inc. (TSLA) build new Mexican plants. SAN stock has rallied about 23% year to date but remains a deep value at just 5 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 with its Bud Light brand. Thankfully, these issues aren’t a concern for its Ambev subsidiary. Ambev holds a net cash position, and competition hasn’t proven to be as fierce in the South American beer market as it is in the U.S.
The possibility of a significant turn toward pro-business policies in Argentina with that country’s upcoming presidential election offers a solid potential catalyst for one of Ambev’s key markets. Ambev shares are also outright cheap for such a stable company, as the stock sells for approximately 13 times forward earnings. On top of that, Ambev offers a dividend yield of 5.3%. That should mark a fine entry point and valuation for this powerhouse of beer.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is one of Colombia’s largest financial groups. Aval, along with two other Colombian banks, jointly 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.
Colombian stocks in general and Aval in particular crashed in recent years thanks to an economic slump and a left-wing turn in the government. However, the nation’s socialist president has seen his approval rating plunge following a series of scandals. This should ensure that Colombia retains a pro-business economic framework.
Meanwhile, as the price of oil rebounds, that should lift Colombian exports and improve operating conditions for Aval. A big appeal of the firm is its monthly dividend of about 1.6 cents per share. While its dividends paid over the last year work out to a trailing dividend of about 4.5%, if the company is able to keep up its current monthly dividend payouts, AVAL will yield about 8.6% in the next 12 months. Either way, this cheap stock offers investors some impressive income.
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. In 2023, those trends have reversed. The stock has now tripled off the lows as both the weather and local economic conditions have been brighter. That said, a recent dip in Chilean equities related to fears around falling export demand has created a fresh buying opportunity for ENIC stock.
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.
[READ: 9 Top EV Stocks and Battery Companies.]
Ardagh Metal Packaging SA (AMBP)
Ardagh is a European materials firm that makes beverage cans for beer, soda, juices, seltzers and other drinks. The company went public in 2020 and initially enjoyed a strong demand tailwind as customers stocked up their pantries at that time. However, like many packaged food and drink companies, Ardagh has stumbled more recently. And due to Ardagh’s large debt load, the effect of weak demand and rising interest rates has cast a dark shadow on the company’s outlook. Regardless, the firm remains profitable and has guided to a return in growth of shipment volumes going forward.
There is significant risk here with the debt. But there is also an 11.6% dividend yield and the potential for a sizable stock price jump if and when earnings pick back up.
Planet Labs PBC (PL)
Planet Labs is a pioneer in the Earth observability industry. In other words, Planet provides on-demand satellite imagery to a variety of commercial and governmental customers. Typical users include industrial firms, shipping companies, insurers and the defense agencies of national governments. The war in Ukraine has demonstrated the power of having advanced imagery for real-time tactical planning.
It’s still the early days of the industry and satellite images remain relatively expensive for many end customers. But as Planet and its rivals put more satellites in the air, the cost of services should come down dramatically, setting the stage for mass adoption of the technology. Meanwhile, Planet Labs has $376 million of cash on hand, giving it a huge balance sheet for funding growth while the business matures.
Matterport Inc. (MTTR)
Matterport is a small Silicon Valley company seeking to commercialize digital photography and imaging solutions. Specifically, Matterport creates 3D representations of built spaces, such as hotels, offices and other types of commercial real estate. Customers can use these for virtual walkthroughs, real estate marketing and so on. Matterport was popular during the SPAC boom and was viewed as a way to play the metaverse phenomenon as well. But when the boom fizzled, MTTR stock was left for dead.
Despite the collapse in the share price, however, the business continues to grow. Revenues jumped from $111 million in 2021 to $136 million in 2022 and are expected to hit $157 million this year. Matterport is still struggling to generate profits, but it has a sizable and growing customer base for its unique business model.
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 trend. Latham’s revenues surged from $318 million in 2019 to $696 million last year.
The boom has ended, and analysts see revenues sliding to $582 million for this year. In isolation, that might seem like a big issue; however, that figure is still far more than Latham generated prior to 2020. Latham remains profitable on an earnings-per-share basis.
It’s hard to dispute that traders got too excited about SWIM stock at its peak, but with shares down almost 90% from the highs, this has become a serious overreaction.
Traeger Inc. (COOK)
Like Latham, Traeger is a cyclical consumer discretionary goods firm that has now seen its fortunes fade. That’s because Traeger makes wood pellet barbecue grills. When everyone was cooped up at home, grills were a logical purchase. Now, though, folks have returned to getting more of their food from restaurants or other alternatives. Meanwhile, many people already bought a grill in 2020 or 2021 and thus aren’t going to be in the market for another one in the near future.
As a result, Traeger’s revenues have slipped approximately 20% from their 2021 peak and the company has dropped to around breakeven on an earnings-per-share basis. However, with the stock price having plunged to $4.08 as of Sept. 7, the company now has a market cap of about $500 million. That’s fairly cheap for a firm with about $600 million in annual revenues and a strong consumer brand.
More from U.S. News
10 of the Best Stocks to Buy for 2023
9 Highest Dividend-Paying Stocks in the S&P 500
Will the Stock Market Crash in 2023? 7 Risk Factors
9 of the Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 09/08/23: This story was previously published at an earlier date and has been updated with new information.
