The stock market enjoyed a strong rally in November. As inflation appears to be coming down, investors are starting to bet that the Federal Reserve will pivot to interest rate cuts in 2024. If interest rates do indeed start to fall, that could set off a large rally in financial assets.
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Many stocks have already made huge jumps over the past month. But there are still a ton of low-priced stocks out there to sift through. In fact, as of the beginning of December, there are nearly 1,900 stocks listed on the major American exchanges trading for $5 per share or less. It might seem daunting to go through such a huge group of companies to find the proverbial needle in the haystack. However, here are nine of the top candidates to deliver outsized gains next year from the sub-$5 stock territory:
— Enel Chile SA (ticker: ENIC)
— Wipro Ltd. (WIT)
— Sibanye Stillwater Ltd. (SBSW)
— Olaplex Holdings Inc. (OLPX)
— Rocket Lab USA Inc. (RKLB)
— Planet Labs PBC (PL)
— Grupo Aval Acciones y Valores SA (AVAL)
— Sunpower Corp. (SPWR)
— Matterport Inc. (MTTR)
Enel Chile SA (ENIC)
Enel Chile is an electric utility which generates and distributes electricity throughout much of Chile. It has a broad range of power generation sources, using hydroelectric, wind, solar and geothermal among its techniques. Parts of Northern Chile have among the highest solar intensity in the world, making Chile a great place for generating grid-scale solar power. Given Chile’s abundant renewable power opportunities, Enel Chile has a pathway to become one of the fastest emerging market-based utilities to get to carbon neutrality.
Fortunately, it appears to be able to achieve these green ambitions quite profitability as well. Shares are trading at just three times earnings. The firm has a variable dividend policy and currently offers a whopping 10.3% dividend yield.
Wipro Ltd. (WIT)
Wipro is an India-based information technology company. It serves as an outsourcing shop, providing solutions such as software implementation, management services and consulting to large enterprises around the world. The company’s robotic process automation (RPA) solutions are a particular source of strength and have helped drive new business for Wipro as companies have rushed to deploy RPAs in recent years.
Outsourcers enjoyed a tailwind over the past few years as the pandemic forced companies to accelerate their digital transformation spending. However, that has abruptly reversed course in 2023 as companies are looking to cut costs and optimize existing IT systems rather than building additional ones. While revenues are set to drop slightly this year, analysts see Wipro returning to growth in the longer term, and shares are at a reasonable 17 times forward earnings today.
Sibanye Stillwater Ltd. (SBSW)
Sibanye Stillwater is one of the world’s largest platinum group metals (PGM) companies. With operations spanning South Africa, the U.S., Europe and Australia, the firm has more than 60,000 employees worldwide. While revenues are highly variable due to the volatility in underlying metals prices, the company on average generates around $7 billion in annual revenue.
The stock has slumped more than 50% over the past year, however, taking the firm down to just a $3.4 billion market capitalization today. This comes amid a big slowdown in several key Sibanye markets. The firm also has exposure to the auto market, as PGMs are used heavily in the fabrication of car components, and a recession could further drag down near-term demand.
However, traders have taken things way too far. Earnings per share will be unpredictable, but the company earned $2.84, $2.84 and $1.51 per share in 2020, 2021 and 2022, respectively, and is now selling for less than $5 per share. That’s a rock-bottom valuation, especially as Sibanye is still profitable now and has a decent balance sheet.
Olaplex Holdings Inc. (OLPX)
Olaplex is a consumer wellness company focused on hair care and beauty products. Its innovation is in selling products directly to consumers rather than relying exclusively on lower-margin, third-party distribution channels. As direct-to-consumer commerce flourished during the pandemic, companies like Olaplex thrived.
However, that trend reversed course in 2022 as in-person shopping patterns returned to normal. In addition, Olaplex relies heavily on social media marketing to generate buzz, and it made some strategic miscalculations in its social strategy. At one point Olaplex stock was down as much as 75% year to date amid a series of brutal earnings reports and worsening sentiment.
But the company is back on track. Shares have rocketed higher since its third-quarter earnings report showing demand stabilizing, and the company laid out a path to renewed growth in 2024. While OLPX stock is up dramatically over the past month, shares are still going for just 21 times the firm’s current depressed earnings.
Rocket Lab USA Inc. (RKLB)
Rocket Lab operates in the fast-growing field of launch services and space systems solutions. When industrial companies or defense agencies need to launch objects such as satellites into space, they can hire Rocket Lab to design and plan the mission to deliver that cargo to its orbit or destination. Rocket Lab’s services have already proven they have substantial commercial demand, as the company generated $211 million in revenue in 2022.
Rocket Lab was briefly derailed following a launch anomaly this year; however, as per its most recent earnings conference call, the situation is being rapidly resolved and the firm has a busy 2024 launch schedule.
The company is still unprofitable, but losses are modest, and analysts see the firm turning a profit in 2025. Combined with the firm’s solid balance sheet, Rocket Lab has time to lift off before running out of runway.
[READ: Megatrends: Investing in the New Space Race]
Planet Labs PBC (PL)
Planet Labs is another space stock
. This one’s focus is on Earth observability rather than rockets. In particular, Planet Labs takes frequent satellite imagery of the Earth and sells it to clients such as government agencies, industrial companies, transportation firms, farmers and other such customers. Frequent satellite imagery helps a wide range of customers better evaluate their business and make nearly real-time decisions. That last point has become crucial over the past two years as geopolitical tensions have flared up in Ukraine, the Middle East and elsewhere.
Historically, satellite imagery was too expensive and infrequent to power this sort of informed decision-making. But as Planet Labs brings down the cost, it greatly expands the addressable marketplace, and the firm is enjoying rapid revenue growth as a result.
The kicker is that Planet has more than $300 million of cash on hand and virtually no debt, giving it a ton of room to keep investing in the business.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is one of Colombia’s largest financial groups. Aval and two other rival Colombian banking groups collectively make up nearly 70% of the domestic market. This concentration ensures limited competition and high levels of profitability. Aval’s founder and majority shareholder, Luis Carlos Sarmiento, is Colombia’s wealthiest person and has a net worth of about $6.5 billion as of August 2023.
While Aval has a long and successful operating history, the past couple of years have been less kind. AVAL stock has slumped amid a prolonged downturn in the Colombian economy and the election of a socialist president in 2022. However, the political pendulum has swung back to the right, with conservatives winning decisive victories in the recent mayoral and governorship elections around Colombia. Aval trades for less than 0.7 times book value, which is a massive discount to its historical valuation. It also pays a generous monthly dividend.
Sunpower Corp. (SPWR)
Sunpower is a California-based solar power company. It works in both technology and energy services, selling solar, storage and home energy solutions in North America. The firm’s SunVault solar battery storage system allows homeowners to store the power they generate on site using either Sunpower or third-party solar panels. Homeowners enjoy benefits such as a unified warranty when ordering a complete integrated solar system from Sunpower.
Sunpower stock has lost about 70% of its value year to date. This is largely due to a bout of government austerity. Solar is still reliant on subsidies for broad adoption, and several jurisdictions have cut back their incentive programs. Over the longer term, however, solar should continue to attract new investment, and that could lead Sunpower back to a brighter future.
Matterport Inc. (MTTR)
Matterport is a spatial data company. It aims to provide the tools to turn physical spaces into data that can be used in digital settings, and as such the stock became popular during the metaverse excitement cycle. As that fizzled out, though, MTTR stock slumped to the low single digits.
It’s true that Matterport has struggled to define its business plan, and revenue monetization is a bit messy between its hardware, fixed licenses and subscription services. Management has work to do in fleshing things out, but the concept is great. For example, consumers can use a Matterport specialized camera to make a 3D model of a building and use that imagery to market real estate properties. This can be useful either for brokerage services or for buildings such as entertainment venues, hotels and other such places wanting to show a 3D, immersive model of a building to prospective clients.
While Matterport is still losing money, revenues are expected to hit $158 million this year and grow by a double-digit clip in 2024. With the recent bounce in more speculative tech stocks, Matterport could be set for a comeback.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
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9 of the Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 12/07/23: This story was previously published at an earlier date and has been updated with new information.
