As of the first week of October 2023, there were 1,968 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.
Most firms that end up in penny stock territory have seen something go dramatically wrong. Often, the business model has broken down, management has made major errors or the balance sheet has fallen into disrepair. And with the stock market sliding and another potential bear market possibly starting to take shape, caution is warranted.
However, there can still be good prudent speculations among low-priced stocks, even during these uncertain times. These nine cheap stocks are poised to deliver strong returns heading into 2024:
Banco Santander SA (SAN)
Banco Santander is a large banking franchise based in Spain. In addition to its Spanish operations, Banco Santander has a sizable footprint across Latin America. This makes Santander an ideal portfolio addition for investors wanting more access to a variety of dynamic Latin American economies. Investors have punished Santander on a valuation basis due to its prior poor performance. The 2008 financial crisis slammed Spanish banks as Spain’s housing market imploded. Continuing economic weakness in Europe throughout the 2010s didn’t help matters.
While the European economy still faces substantial structural challenges, other Santander divisions are performing better. Santander Mexico 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 25.8% this year through Oct. 5 but remains a deep value at just 5.3 times forward earnings.
Ambev SA (ABEV)
Ambev is the South American division of global brewing giant Anheuser-Busch InBev SA/NV (BUD). AB-InBev has had a challenging 2023 due to its excessive debt and various marketing issues with its Bud Light brand. Thankfully, these problems aren’t a concern for its South American subsidiary Ambev. In fact, Ambev holds a net cash position, and has avoided the sorts of competitive mistakes that have tripped up the parent company.
Argentina, a key Ambev market, votes for its president on Oct. 22, and polls show that a pro-business candidate is likely to replace the existing socialist leader. This could lead to both an improved valuation and better business prospects for Ambev. Shares are also outright cheap for such a stable company, as the stock sells for 12.6 times forward earnings. On top of that, Ambev offers a dividend yield of 5.8%. That should mark a fine entry point and valuation for this powerhouse of a beer company.
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 recession and unfavorable Chilean politics caused shares to plummet. Things are looking up this year, however. ENIC stock has rebounded to close at $2.84 on Oct. 5 amid improving weather and political conditions in Chile. Still, there is room for plenty of additional upside, as the stock trades for 7.7 times forward earnings.
It’s not just current earnings that make Enel Chile attractive, either. More broadly, Chile is a global leader in green power 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. On the demand side, Chile should see an economic boom thanks to its massive copper and lithium reserves, which are used in the batteries needed to power the electric vehicle revolution.
B2gold Corp. (BTG)
For a while there, it seemed like gold was picking up steam. The price topped $2,000 per ounce as investors flocked to gold for safe harbor amid geopolitical tensions and an unsettling macroeconomic backdrop. However, rising interest rates have weighed on the gold market more recently. With risk-free interest rates topping 5%, there’s a higher opportunity cost to holding gold, and some investors appear to be rotating out of precious metals into fixed income. After an abrupt decline in September, gold is now down about $200 per ounce after reaching more than $2,000.
Gold’s decline has driven shares of mining firm B2gold down about 30% recently. However, with the volatility in the global economy, it’s not hard to imagine gold returning to popularity soon. Meanwhile, B2gold gives investors diversified exposure to the metal as it has mines in Mali, Namibia and the Philippines. Shares trade for 9.9 times forward earnings and offer a 5.5% dividend yield.
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. While this is a speculative industry in its early days of commercialization, Rocket has already proven there is significant demand for its Electron launch vehicles and Photon satellite platforms. In fact, Rocket is on pace to generate more than $250 million in revenue this year. And analysts see that leaping to more than $600 million in 2025, with the firm also projected to reach profitability that year as well.
JetBlue Airways Corp. (JBLU)
The travel industry enjoyed a tremendous run over the past 18 months as the global economy reopened from the pandemic. However, the airlines in particular have run into a big pocket of turbulence over the past few months. The rebounding price of oil will cause airlines to shell out a lot more for jet fuel. Labor tensions are causing airlines to raise employee compensation dramatically. And inflation and weakening consumer spending power seem likely to cause traffic growth to decelerate. However, airline stocks such as JetBlue now fully reflect these issues. In fact, with JBLU stock down 32% over the past six months and seeing heavy short interest in its shares, shares could be poised for a major rebound.
Olaplex Holdings Inc. (OLPX)
Olaplex is a consumer wellness company focused on hair care and beauty products. Its innovation was 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, things have changed direction rapidly. The reopening of the global economy has made it harder for digitally native brands to keep up prior growth rates. And Olaplex has made some missteps with recent marketing moves. However, with the stock down around 80% over the past year, things have gotten out of hand. The company remains profitable and is selling at just 10.3 times forward earnings. Barclays analyst Lauren Lieberman just upgraded the stock at the start of October, citing business stabilization.
Grupo Aval Acciones y Valores SA (AVAL)
Grupo Aval is one of Colombia’s largest financial groups. Aval, along with two other Colombian banks, 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 about $7 billion and became one of Colombia’s wealthiest people, primarily due to Aval’s success.
Colombian stocks in general and Aval in particular slumped last year amid a leftward swing in the government and challenging macroeconomic conditions. Political risk has receded, however, as the president has seen his momentum quickly dissipate within Congress. On the economic side, things are looking up. Colombia’s primary export, oil, has rebounded. And as inflation moderates, Colombia’s central bank should kick off a massive rate-cutting cycle. Investors haven’t pieced together the good news yet, and Aval shares are still trading below their March 2020 lows. That discount represents a great opportunity.
Perimeter Solutions SA (PRM)
Perimeter Solutions is a firm with a unique operating niche. It is the leader in selling products used in firefighting, such as fire suppressants and firefighting foams. The company also has a lubricant additives business. Perimeter went public via a special-purpose acquisition company, or SPAC, merger and was initially popular, as deal insiders such as William Thorndike and W. Nicholas Howley are well-respected figures in the value investing community. However, like many SPACs, Perimeter has gotten off to a slow start. A wet spring season, for example, greatly curtailed fire activity this year, 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 thus it should only be a matter of time until it bounces back from its current low point.
This article was originally published on this site