Will the Federal Reserve cut interest rates aggressively in 2024, or will the monetary policy pivot be delayed? That’s a top question for investors right now. Stocks have surged over the past quarter as traders position themselves for a potential economic soft landing.
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While investors may feel like the best opportunities have passed amid the rally, there are still plenty of low-priced stocks out there. In fact, as of February 2024, there are more than 1,850 stocks listed on the major American exchanges trading for $5 or less. That’s a big pile to sift through. However, here are nine cheap stocks that look like diamonds in the rough to put on your watchlist today:
— Petco Health and Wellness Co. Inc. (ticker: WOOF)
— ICL Group Ltd. (ICL)
— Sibanye Stillwater Ltd. (SBSW)
— Sunpower Corp. (SPWR)
— iQiyi Inc. (IQ)
— Olaplex Holdings Inc. (OLPX)
— Grupo Aval Acciones y Valores SA (AVAL)
— Matterport Inc. (MTTR)
— Perimeter Solutions SA (PRM)
Petco Health and Wellness Co. Inc. (WOOF)
Leading pet goods retailer Petco Health and Wellness went public in January 2021. Shares opened at $26, 44% above their IPO price, and soared 63% on their first day of trading. Fast forward to today and that enthusiasm is long gone, with the stock now trading for less than $3 per share. As with many categories of consumer discretionary goods, people went the extra mile for their pets during the pandemic. Stuck at home, folks were adopting cats and dogs at record numbers and spending more lavishly on them.
Now, though, with the economy reopened, this trend has reversed itself. Add in inflation, rising labor costs and a shaky balance sheet, and this has been a perfect storm for Petco. However, the company’s revenues have remained steady despite these challenges. And while margins are down, Petco remains profitable and analysts see the company’s earnings per share returning to growth in 2025. The company is in the doghouse right now, but with $6 billion in annual revenues, upside could be considerable from Petco’s current $750 million market capitalization.
ICL Group Ltd. (ICL)
ICL Group is an Israel-based specialty minerals and chemicals company that provides raw inputs for the agriculture industry. Its business segments include industrial products, potash, phosphate solutions and growing solutions. ICL provides crucial materials that help farmers and ranchers achieve top yields from their crops and land.
Historically, goods like potash have been subject to a boom-bust cycle and producers are assigned a low price-earnings multiple as a result. The cycle is in effect once again, as 2022’s high agriculture prices have now reverted back toward more normal levels. In addition, geopolitical tensions in Israel have further provoked jitters among Israeli-based companies such as ICL. This mix of factors has sent ICL stock down to about 10 times forward earnings. The company offers a large dividend yield of 7.9% as well.
Sibanye Stillwater Ltd. (SBSW)
Sibanye Stillwater is a precious metals mining company that produces gold and silver along with platinum group metals such as palladium, platinum and rhodium, among others. It is a highly diversified firm, with projects in locations ranging from South Africa and Zimbabwe to the United States, Canada and Argentina.
Sibanye Stillwater shares plunged in 2023, largely driven by the unrelenting decline in the value of the platinum group metals. These tend to go into industrial uses such as vehicles, and those markets turned downward last year. It’s certainly possible that the downturn will continue, especially if high interest rates lead to a recession. However, prices of other Sibanye Stillwater products such as gold have been firm in recent months. The company remains profitable and has more than $1.1 billion of cash on hand, giving it plenty of sticking power to ride out this current industry slump.
Sunpower Corp. (SPWR)
Sunpower is a California-based solar power company. It offers technology and energy services, selling solar hardware, storage and home energy solutions primarily in North America. Sunpower’s unique approach is that it offers an all-in-one solution. It sells the solar panels, batteries and integrated monitoring and software solutions to manage it all, and all these goods are covered under one integrated warranty.
2023 was a dour year for the renewable energy industry. Prices of wind, solar, lithium and hydrogen companies plunged amid a slowdown in government subsidies. The end of zero interest rate policies has also caused investors to prioritize profits over future growth in the energy sector. Sunpower faces plenty of risk as it is losing money now, and short sellers are circling the company, looking for complete collapse. However, analysts expect Sunpower to return to profitability in 2025 and if that happens, shares should recoup much of their recent losses.
[READ: 15 Best Dividend Stocks to Buy for 2024]
iQiyi Inc. (IQ)
iQiyi is one of the largest Chinese video streaming platforms. The company both aggregates content and creates its own original productions; it has a focus on dramas and variety programming. It counts a daily user base of more than 100 million and earns money from subscriptions, advertising and online gaming, among other sources.
When iQiyi went public, it was in a rapid growth phase and was losing large sums of money to expand its user base. Many investors seemingly wrote off the company thanks to its unproven business model. However, things have changed. iQiyi is now highly profitable as it has achieved operating scale and has been able to throttle back costs and focus on improving its margins. Shares now go for less than nine times forward earnings. Chinese stocks are absolutely in the doldrums right now for understandable economic and geopolitical reasons. But when that changes, iQiyi should be set for a major recovery in its share price.
Olaplex Holdings Inc. (OLPX)
Olaplex is a consumer wellness company focused on hair care and beauty products. It is known for its direct-to-consumer business model instead of traditional lower-margin third-party distribution. This worked tremendously during the pandemic as customers increasingly turned to online shopping. However, this trend started to reverse itself in 2022 and Olaplex compounded its struggles with a series of marketing missteps.
By the time Olaplex bottomed out, shares had fallen from a peak of $29 to less than $2 in late 2023. However, it appears that Olaplex has now turned the corner. The company’s latest earnings report was a significant improvement from previous quarters. Olaplex remains profitable and new CEO Amanda Baldwin took over in December. With any additional positive developments, Olaplex should be able to build on its recent turnaround.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is one of Colombia’s largest financial groups; it operates several banking brands along with insurance, asset management and infrastructure units. Aval and two other rival Colombian banking groups collectively make up nearly 70% of the domestic banking 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 an estimated net worth of about $7.4 billion.
AVAL shares dropped from around $8 prior to the pandemic to less than $3 now. Colombia’s economy was in a prolonged slump between low oil prices and the ill effects of the pandemic. However, Colombia returned to robust economic growth in 2022 and the banking sector’s outlook has improved. However, AVAL shares remain depressed primarily due to political worries surrounding the country’s left-wing president, though new investigations into allegations of the Sarmiento family’s past bribes to secure government contracts haven’t helped. When sentiment turns, Aval should be set for a dramatic rally.
Matterport Inc. (MTTR)
Matterport is a spatial data company. It develops tools to turn physical spaces into data for digital purposes. Not surprisingly, the stock became popular during the metaverse excitement cycle. As that fizzled out though, MTTR stock slumped to the low single digits.
Matterport is still evolving its business model, and revenue monetization has been a bit messy between its hardware, fixed licenses and subscription services. Investors are understandably skeptical, but the underlying concept has value. To that point, analysts expect Matterport to generate roughly $178 million in revenues in 2024, showing that there is already a wide pool of clients for this service. And now with augmented and virtual reality gaining steam thanks to the launch of Apple Inc.’s (AAPL) Vision Pro headset, this could be the year where Matterport’s business makes a mainstream impact.
Perimeter Solutions SA (PRM)
Perimeter Solutions is a specialty chemical company which primarily sells fire suppressants and firefighting foams. The company also has a lubricant additives business.
Perimeter went public through a special-purpose acquisition company, or SPAC, featuring deal insiders such as William Thorndike and W. Nicholas Howley who are well-respected figures in the value investing community. However, Perimeter has gotten off to a slow start. An unseasonably rainy 2023 out west greatly curtailed wildfire activity, leading to fewer sales of Perimeter products.
However, investors should think about the company on a multiyear basis, as the weather should average out over time between benign and more destructive fire seasons. Perimeter has high market share within most of its core products, and that should pave the way for a recovery in the firm’s shares going forward.
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9 Best Cheap Stocks to Buy Under $5 originally appeared on usnews.com
Update 02/08/24: This story was previously published at an earlier date and has been updated with new information.
