9 Best Cheap Stocks to Buy Under $5
With the stock market stuck in a downtrend, there are plenty of cheap stocks out there. Indeed, the universe of stocks trading for $5 per share or less is large; currently, about 1,800 U.S.-listed companies are selling for less than that amount.
Most companies trading in the low single digits tend to be poor-quality investments that carry high risks. After all, there is usually an understandable reason why a company ends up in penny stock territory and people should employ extra due diligence with low-priced stocks. That said, there are certainly some bargains out there for discriminating investors.
Here are nine of the best cheap stocks to buy for 2023:
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval Acciones y Valores is a Colombian holding company. Aval has a majority ownership position in four different Colombian banks. In aggregate, Aval’s properties make up roughly a quarter of the Colombian banking market. Due to the relatively low level of competition, Colombian banks historically have earned high profit margins. Nowadays, the sector is trading at low levels due to political developments.
Colombia elected a left-wing president in 2022 and investors dumped much of their exposure to the country following that development. As of yet, however, there doesn’t appear to be much actual damage to the economy. Aval, for its part, is trading for less than six times forward earnings, and shares are down 70% from where they were trading prior to the onset of the pandemic. That seems like an overreaction, especially as Colombia is an oil exporter and thus benefits from the current inflationary environment.
Terran Orbital Corp. (LLAP)
Terran Orbital is a technology company in the space industry that’s known for producing satellites. This has become an increasingly attractive field thanks to a recent wave of merger and acquisition activity in the industry. Terran, for what it’s worth, has scored a $100 million investment from defense giant Lockheed Martin Corp. (LMT). And in February, Terran shares soared as much as 70% after it won a gigantic $2.4 billion contract. Under the terms of the deal Terran will build 288 low-earth orbit satellites. That’s simply a massive amount of business for Terran, which has a mere $300 million market capitalization today. The issue is with profitability, or the lack thereof. However, as Terran starts to generate far more revenue and works with key partners like Lockheed Martin, it may be able to start generating positive earnings per share as well.
Rackspace Technology Inc. (RXT)
Rackspace is an enterprise infrastructure solutions company. Private equity firm Apollo took Rackspace private in 2016, but it returned to public markets via a 2020 initial public offering. That IPO went public for $21 per share, but the stock now goes for less than $2.50. Shares are down 75% over the past year, which speaks to the challenge facing the company and its industry, but also the opportunity if management can turn things around. Namely, Rackspace has a large but shrinking legacy cloud hosting business. As technology advances, demand for this more traditional hosting experience declines. That said, Rackspace has pivoted into higher valued-added services in multi-cloud hosting. These should grow quickly and have strong profit margins. Rackspace’s business turnaround was slowed due to a high-profile ransomware attack in December. Regardless, the company has historically been solidly profitable and now sells for less than 0.2 times revenues.
Ambev SA (ABEV)
Ambev is the South American division of global brewing giant Anheuser-Busch InBev SA (BUD). While AB-InBev has had its share of problems, Ambev has been a more attractive business. For one thing, Latin America doesn’t have the same level of competition from craft brewing as has been seen in developed markets. For another, Ambev has a great balance sheet and maintains a net cash position. This insulates Ambev from near-term economic volatility.
Shares are also outright cheap for such a stable company, as the stock sells for less than 16 times forward earnings. On top of that, Ambev offers a dividend yield of more than 5% today. That should mark a fine entry point and valuation for this powerhouse of beer. The company has also regained operational momentum, with its recent fourth-quarter results showing a 36% year-over-year rise in profitability.
Matterport Inc. (MTTR)
Matterport was once a high-flying technology special purpose acquisition company, or SPAC. Nowadays, the stock is down more than 80% from its prior peak. However, Matterport still has an interesting business model. The company serves realtors and landlords by making 3D virtual representations of buildings. This allows folks to create digital walkthroughs of locations. In a world of remote work and reduced travel budgets, Matterport’s technology could enjoy broad adoption.
The company generated $136 million of revenue last year and analysts expect it to hit about $160 million in 2023. Matterport should have a wide addressable market as it continues to sign up more venues such as wedding halls, luxury hotels and so on. While Matterport still has a lot farther to go in terms of reaching profitability, with shares at less than $3 now, that is reflected in the stock’s valuation today. And if interest in the metaverse ever picks back up, Matterport would be a winner.
Agora Inc. (API)
Agora is a technology company that offers a real-time engagement platform-as-a-service (RTE-PaaS). This platform is used to support chat rooms, live video, voice, messages and so on, and allows these functions to work within applications. Agora became notable for powering a couple of popular apps, such as social messaging service Clubhouse. However, Agora’s growth came to a halt as the pandemic-related surge in social media app usage has now reversed itself. Agora’s revenues fell slightly in 2022, and analysts expect another small decline this year. Regardless, the company is still expected to bring in a solid $157 million of revenue this year. Meanwhile, the bullish argument for the stock is a simple one. Agora currently has a market capitalization around $350 million. However, it had a cash balance of $428 million as of Dec. 31, 2022. This means Agora is selling at a negative enterprise value, implying that the actual software business is going for a minimal value.
Latham Group Inc. (SWIM)
Latham Group is a consumer discretionary company that designs and manufactures in-ground swimming pools and associated products such as pool covers and liners. The company went public in 2021 and managed to trade initially for around $30 per share. This was while folks were still stuck at home and thus spending heavily on home improvement projects such as pool installations. Since then, demand for pools has dropped and Latham stock has taken a dive; shares are down more than 80% from their peak. At this price, Latham seems much too cheap. Investors are valuing the company at just $445 million, whereas the company generates around $600 million in annual revenues. Additionally, the stock is going for just 11 times forward earnings. It’s true that the swimming pool market has cooled off after a couple of huge years. But, the industry isn’t going away in the longer-term, making Latham a favorable discount at its current depressed price.
UWM Holdings Corp. (UWMC)
UWM Holdings operates one of America’s leading mortgage origination companies. Lately this has been a difficult business, to put it mildly. Soaring interest rates have caused the mortgage market to freeze over. With rates at far higher levels, consumers can’t afford nearly as much house as they could a year or two ago. Investors have predictably dumped shares of mortgage companies such as UWM and chief rival Rocket Companies Inc. (RKT).
UWM’s results have indeed slumped. The company had grown revenues from $1.2 billion to $5 billion between 2019 and 2020. Since then, however, revenues dipped back to $2.1 billion in 2022. There appears to be light at the end of the tunnel. Analysts expect UWM to return to growth in 2024. And, as it stands today, UWMC stock is at about 13 times expected 2024 earnings. The company also pays an 8.5% dividend yield. The mortgage market won’t turn around overnight, but it will rebound sooner or later, and UWM should stand to benefit.
Ardagh Metal Packaging SA (AMBP)
Ardagh Metal Packaging is a company that makes packaging materials, particularly aluminum cans for drinks such as beer, sodas, juices and sparkling water. While cans may not seem like a particularly exciting business, Ardagh’s dividend certainly generates investor attention. At its current stock price, Ardagh is offering a 9.1% dividend yield. That reflects current market pessimism, as Ardagh earnings came up short of expectations in 2022 and the stock dropped accordingly. Ardagh has invested for growth along with restructuring some of its existing operations. In 2023, however, the outlook should stabilize as Ardagh’s expenses normalize and supply chain constraints ease up as well. AMBP currently goes for about 14 times forward earnings.
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