Equity analysis is not an exact science. A stock’s value can be hinted at by fundamental factors such as the price-to-earnings ratio, debt-to-equity and book value, among others. Technical factors based on trading patterns and simple supply-and-demand dynamics also play an important role. But, in addition to these measurable elements, there are also psychological factors which are more difficult to access.
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One powerful psychological factor is the relative price of the stock. Buying many shares of a cheap stock trading under $20 can be more satisfying and gives an investor a greater sense of achievement than buying fewer shares of a stock trading for over $100. Many retail investors find lower-priced stocks more accessible. In other words, there is a certain appeal to owning a larger number of shares. The tangible effect of this perception can’t be quantified, but that doesn’t mean it should be ignored.
Low-priced stocks may have more room for price appreciation. In some cases, they are seen as undervalued or at early stages in their growth cycle. In other instances, investors feel that quality stocks with relatively low prices represent superior value due to market inefficiencies that could be corrected at any time.
Some low-priced stocks are speculative. They offer opportunities for high total returns if the company successfully executes on its business plan or rebounds from a downturn. Such stocks have tremendous potential but are only suitable for more aggressive investors.
If you’re attracted to lower-priced stocks under $20 and see value in diversifying your portfolio to include this category of equity securities, check out this list of seven cheap stocks to buy now for big gains in the future:
— Energy Transfer LP (ticker: ET)
— Vale S.A. (VALE)
— Host Hotels & Resorts Inc. (HST)
— Banc of California Inc. (BANC)
— Ford Motor Co. (F)
— PG&E Corp. (PCG)
— NIO Inc. (NIO)
Energy Transfer LP (ET)
ET is a low-priced stock that is organized as a master limited partnership, or MLP. An MLP is a publicly traded company that operates as a partnership rather than a corporation. The shares of an MLP are called units, but they trade on major exchanges just like common stocks or ETFs do.
ET has a market cap of $55 billion, but the stock’s price is well under $20. The firm is involved in the midstream segment of the oil and gas industry. That means that it generates most of its revenue from the transportation and storage of hydrocarbon energy. ET owns and operates a large and sophisticated network of pipelines that transport oil and gas to major ports where it’s then shipped to countries around the globe.
Because MLPs distribute most of their taxable income to unitholders as dividends, they are generally purchased for the positive cash flow they provide. That said, ET does have the potential for significant capital appreciation over time as energy prices rise.
The stock has an attractive 12-month trailing dividend yield of 7.8%.
Vale S.A. (VALE)
Vale is a metals and mining firm that’s one of the world’s premiere producers of iron ore and nickel. Additionally but in smaller quantities, the company produces and processes copper, manganese, ferroalloys and coal.
While industrial metals are the firm’s primary source of revenue, Vale also has interests in several producing gold, silver and platinum mines. These holdings give the company a small but meaningful presence in the precious metals markets.
UBS has a “buy” rating on the stock. JPMorgan, Morgan Stanley and Barclay’s all maintain an “overweight” rating on this $44 billion company.
The company is dedicated to distributing a significant part of their ongoing earnings and revenue to shareholders as a regular income dividend. Vale has a very impressive 12-month trailing yield of 12.9%.
Host Hotels & Resorts Inc. (HST)
HST is one of the relatively few stocks under $20 that is also a component of the S&P 500. This real estate investment trust, or REIT, owns 76 upscale and luxury hotels in major cities in the U.S., as well as five other properties in international locations. Its brand partners include upmarket names like Ritz-Carlton, Four Seasons, St. Regis and Swissôtel.
Overall, HST controls more than 43,000 high-end hotel rooms. Wall Street estimates the company will generate $5.6 billion in revenue in 2024 and $5.8 billion in 2025, showing revenue growth of 4%.
HST has a market cap of about $13 billion, making it the largest hospitality REIT in the U.S. On Sept. 13, the equity research department at Wells Fargo reiterated the “overweight” rating it has on the stock.
On top of the 4.2% 12-month trailing yield, this REIT also has the potential for long-term capital appreciation as properties in the lodging industry increase in value and hotel room rates rise.
[READ: 5 Great Fixed-Income Funds to Buy Now]
Banc of California Inc. (BANC)
BANC is a $2.6 billion bank holding company that operates online and through an extensive branch network in the state of California. BANC provides commercial and consumer banking services that include personal and business deposit accounts, consumer credit, real estate mortgages and business loans. It also has a private banking division that offers banking, insurance and investment planning to high-net-worth individuals.
In the area of commercial and business banking, BANC has made a particular name for itself in the real estate and development industry. It’s cultivated a niche in that area by specializing in real estate loans to builders, developers and commercial real estate investors for the new construction or acquisition of income-producing real estate. By concentrating on the successful execution of new loans and providing superior customer service, it’s been able to retain customers and generate a thriving commercial mortgage refinance business.
Wall Street analysts are estimating the bank will generate $922 million in revenue for 2024 and grow that number by 8.4% to $1 billion in 2025. On Sept. 17, Raymond James upgraded the stock from “market perform” to “outperform.” BANC has a 12-month trailing dividend yield of 2.6%.
Ford Motor Co. (F)
Ford is an iconic American company well known — along with General Motors Co. (GM) and Stellantis N.V. (STLA) — as one of the big three automakers. Ford engineers, manufactures and distributes an impressively large array of commercial and consumer trucks, cars, minivans, full-sized vans and sport utility vehicles (SUVs). The company’s best-known brands are its namesake brand and Lincoln Motors.
On top of auto sales, the company’s parts and service divisions contribute significant amounts of revenue to the top line and profits to the bottom line. Speaking of revenue, it’s estimated that Ford will generate $172 billion in revenue in the current year and $173 billion in 2025.
Additionally, Ford continues to maintain its reputation for being an income stock. The company has a forward annual dividend of 60 cents a share, which, based on its current stock price, equates to a 12-month yield of 5.5%. The company has a market cap of $43 billion.
PG&E Corp. (PCG)
Oakland, California-based PCG is a $52 billion regulated natural gas and electricity utility serving residential and commercial customers in California. The company conducts virtually all of its business operations through its main subsidiary, Pacific Gas & Electric Company.
PCG uses diverse production methods to generate the electricity it sells. It operates several traditional fossil fuel-burning plants but cuts down on its carbon footprint by using fuel cell technology and solar panels to a significant extent.
The company owns almost all of the transmission lines and switching stations it uses to transmit the electricity it produces. In a similar manner, it also owns the vast pipeline network and storage terminals it uses for natural gas distribution.
In a research note to clients published on Sept. 3, UBS reiterated the “buy” rating it has on the stock and raised its price target from $24 to $26. The stock closed at $19.60 on Sept. 19.
NIO Inc. (NIO)
NIO is the most prominent electric-vehicle (EV) manufacturer in China. The $11 billion electric car maker was founded in 2014 by Chinese entrepreneur William Li and has become a legitimate competitor to Elon Musk’s Tesla Inc. (TSLA) in the Chinese market.
NIO offers five popular EV models in sedan, coup and SUV styles. The company has been praised for its advanced technology and precision engineering. One of its most brilliant innovations is something it calls battery-swapping. Rather than charging your EV at a charging station, NIO owners can pull into a battery-swapping station and swap their depleted battery for a fully charged one. Battery swapping takes only minutes and customers greatly prefer it to traditional charging which can take hours.
In 2021 NIO partnered with Nvidia Corp. (NVDA) and several other high-tech firms to develop and eventually deploy fully autonomous self-driving systems for future NIO models. Fully self-driving EVs are still several years away, but the NVDA partnership is promising for future growth.
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7 Best Cheap Stocks to Buy Under $20 originally appeared on usnews.com
Update 09/20/24: This story was published at an earlier date and has been updated with new information.
