During times of market volatility, investors are looking to get return anywhere they can. One approach is to find cheap stocks (i.e. stocks that trade for less than $10). It’s not surprising that many of the cheap stocks can be found on Robinhood. This trading app is popular among millennial investors. And those investors are willing to speculate on cheap stocks.
And it’s easy to see why. Buying 100 shares of a stock that is trading for $5 can seem to be a wise investment if the stock moves higher. After all, if the stock price increases just $1, investors can see a 20% gain.
But that is not always the case. In fact, it’s not usually the case. The trap that some investors fall into is believing that these stocks can be the next Amazon or Apple. And while they do offer a potential reward, they also carry significant risk. It’s important to remember that when a stock is selling for less than $10, there’s usually a reason. And in some cases, it means the stock is under selling pressure.
This is one time when it’s important to remember that inexpensive does not necessarily mean the stock is a good value. However, there are some quality stocks that can be found in the bargain bin. And for many of these stocks, the value is found in a solid dividend that can reward income investors.
Quick Links
- Sirius XM Holdings
- ADT
- Zynga
- Upwork
- Amcor
- Sandstorm Gold
- Celsius
- SmileDirectClub
#1 - Sirius XM Holdings (NASDAQ:SIRI)
We live in a world of on-demand everything. And while Netflix (NASDAQ:NFLX) is drawing a lot of attention as more Americans are sheltered in place, Sirius XM Holdings (NASDAQ:SIRI) should not be quickly overlooked. In 2019, the satellite radio behemoth added 1.1 million subscribers. That brought its total number of paying subscribers to 30 million. That number doesn’t include an additional 5 million subscribers whose subscriptions are paid by automakers.
There are risks in investing in SIRI stock. The most critical one will be to see if demand for the service will decrease. Unemployment numbers are rising and that has a psychological effect on those that are working as well. It’s possible that the company’s subscriber numbers could tumble. It also bears watching how much growth the company will lose as auto sales will almost certainly lag the overall economic recovery.
The company is also facing the announced retirement of its flagship talent, Howard Stern in December. It’s possible that Stern will reconsider his decision and the company owns exclusive rights to Stern’s library through 2027, but fans of the show may go elsewhere to look for content.
At the time of this writing, Sirius XM Holdings was ranked number 15 in the most bought stocks under $10 on Robinhood.
About Sirius XM
Sirius XM Holdings Inc operates as an audio entertainment company in North America. It operates in two segments, Sirius XM, and Pandora and Off-platform. The company's Sirius XM segment provides music, sports, entertainment, comedy, talk, news, traffic and weather channels, and other content, as well as podcast and infotainment services on subscription fee basis; and live, curated, and exclusive and on demand programming services through satellite radio systems and streamed through applications for mobile and home devices, and other consumer electronic equipment.
Read More - Current Price
- $23.08
- Consensus Rating
- Reduce
- Ratings Breakdown
- 4 Buy Ratings, 5 Hold Ratings, 5 Sell Ratings.
- Consensus Price Target
- $27.58 (19.5% Upside)
#2 - ADT (NYSE:ADT)
For a company that specializes in home security, shares of ADT (NYSE:ADT) stock have been far from a safe haven for investors. Since the company’s initial public offering (IPO) in 2018, the stock is down over 50%. But the company has a brighter outlook. To begin with, they are expected to report solid year-over-year earnings growth when they issue their quarterly earnings report on May 7.
The company is also strategically pivoting to catch up to the advanced in home security. The company is focusing its efforts on automation, smart home devices and mobile security. Like many businesses right now, the looming recession and current unemployment numbers may cause consumers to hold off on making investments in home security systems or cancel existing services. On the other hand, the new focus on sheltering in place may move security to the forefront of consumer budgets, particularly if they start working from home more.
A consensus price target of $7.69 suggests the stock may gain over 35% from current levels. In the meantime, investors can enjoy a nice dividend that is currently yielding over 2% and has increased in each of the last six consecutive years.
About ADT
ADT Inc provides security, interactive, and smart home solutions to residential and small business customers in the United States. It operates through two segments, Consumer and Small Business, and Solar. The company provides burglar and life safety alarms, smart security cameras, smart home automation systems, and video surveillance systems.
Read More - Current Price
- $6.83
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $8.55 (25.2% Upside)
#3 - Zynga (NASDAQ:ZNGA)
Another popular Robinhood stock is Zynga (NASDAQ:ZNGA). ZNGA stock holds the number nine position of the app’s most popular stocks with share prices under $10.
For the unfamiliar, the company makes many of the mobile games that have become ubiquitous on smartphones and smart media. Among the games in Zynga’s portfolio are Words with Friends, CSR Racing, and Farmville. Online games accounted for approximately 80% of the company’s 2019 revenue of $1.32 billion. This offset a smaller increase in advertising which grew just 16%.
Obviously the Covid-19 pandemic serves as a potential catalyst as millions of Americans need something to do to pass idle hours. Another potential catalyst for the stock may come from a partnership with Amazon (NASDAQ:AMZN)in which Zynga will bring extra content to Prime subscribers for free.
The company had a record quarter in terms of both revenue growth and quarterly bookings. And even with the economy beginning to re-open, many Americans are still under shelter-in-place orders for the foreseeable future. With that in mind, I would expect that the next quarter’s earnings, which the company reports on May 6, will be equally as impressive.
About Zynga
Zynga Inc develops, markets, and operates social game services in the United States and internationally. The company provides social games as live services played on mobile platforms, such as Apple iOS and Google's Android operating systems; social networking platforms, such as Facebook and Snapchat; and personal computers consoles, such as Nintendo's Switch game console, and other platforms and consoles.
Read More - Current Price
- $8.18
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - Upwork (NASDAQ:UPWK)
The gig economy has created interest in Upwork (NASDAQ:UPWK) stock. And according to research from Mastercard (NYSE:MA), gig work is projected to grow at a compound annual growth rate (CAGR) of 17% through 2023.
And that report almost certainly didn’t account for the Covid-19 pandemic. Many freelancers are turning to sites like Upwork to prospect for work. Upwork and other sites like it is a huge job board for freelancers to find gig work. Clients and freelancers can use the site to collaborate. Upwork’s revenue increased by 19% in 2019; this increase was largely driven by its freelancer marketplace.
Some freelancers can find long-term engagements through the site. But the site is geared to “one-off” jobs that small business owners don’t want to tackle or feel it’s worth the investment to have someone else do the job for them.
A potential obstacle may be that as many small businesses are still closed due to the novel coronavirus, they may cut the expenses they pay for work that may be seen as a “luxury” during this time.
Investors looking to invest in the stock need to pay close attention to Upwork’s earnings report. The company continues to run through cash, posting a net loss of $16.7 million in 2019.
About Upwork
Upwork Inc, together with its subsidiaries, operates a work marketplace that connects businesses with various independent professionals and agencies in the United States, India, the Philippines, and internationally. The company's work marketplace provides access to talent with various skills across a range of categories, including administrative support, sales and marketing, design and creative, and customer service, as well as web, mobile, and software development.
Read More - Current Price
- $16.44
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $18.36 (11.7% Upside)
#5 - Amcor (NYSE:AMCR)
Amcor (NYSE:AMCR) was a small packaging company that recently got a lot bigger. In 2019, the company completed a purchase of Bemis. Packaging remains both a challenge and an opportunity for companies. Sustainability is a major concern as consumer backlash towards plastic continues.
Amcor is making a push to create greater sustainability by expanding into a key area of “increasingly light-weighted, recyclable and reusable” products. These products are being made with an eye towards increasing the amount of recycled content.
The consensus price target for Amcor is $11.70 which is an increase of over 35% from the stock’s current level. The company reports earnings on May 11 and is expected to have earnings per share of 16 cents. That would match what the company reported in its previous quarter.
AMCR stock has a beta below 1 which means that it is less volatile than the broader market. While this may not provide investors with rapid capital growth, they should still consider Amcor for its dividend. The company was recently named to the Dividend Channel’s “S.A.F.E. 25” list. The company sports a dividend yield of 5.41% and most recently paid out a dividend on March 24, 2020.
About Amcor
Amcor plc develops, produces, and sells packaging products in Europe, North America, Latin America, Africa, and the Asia Pacific regions. The company operates through two segments, Flexibles and Rigid Packaging. The Flexibles segment provides flexible and film packaging products in the food and beverage, medical and pharmaceutical, fresh produce, snack food, personal care, and other industries.
Read More - Current Price
- $9.40
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $11.20 (19.1% Upside)
#6 - Sandstorm Gold (NYSE:SAND)
It’s hard not to stress how important it is for investors to invest in gold stocks. But the current rally may have investors wondering if they’ve missed the rally on mining stocks. A different way to play the current gold rush is through a company like Sandstorm Gold (NYSE:SAND).
Sandstorm collects royalties from the gold mining companies that they finance. After providing upfront financing, Sandstorm receives a percentage of the gold produced for the lifetime of the mine. Like mining stocks, SAND’s stock price moves up and down with the production of gold. The company recently posted record fiscal year revenue largely due to a record amount of gold sold.
This is a trend that’s expected to continue through 2020 as revenue is expected to climb another 27% and earnings are supposed to climb 44%. And although SAND stock has climbed 18% in the last two weeks, it’s still 30% below its 52-week high. With no expectation of mines closing, investors have a long runway.
About Sandstorm Gold
Sandstorm Gold Ltd. operates as a gold royalty company. The company focuses on acquiring royalties and gold and other metals purchase agreements from companies that have advanced stage operating mines. It offers upfront payments for companies to acquire a stream and receives the right to purchase a percentage of a mine's production for the life of the mine.
Read More - Current Price
- $5.39
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $8.50 (57.7% Upside)
#7 - Celsius (NASDAQ:CELH)
Celsius (NASDAQ:CELH) is one of the smallest of the small-cap stocks. But the company has a nice story to tell investors. The company makes health drinks under the Celsius brand. Sales of its health-conscious products have climbed from $14.6 million to $75 million in the last five years. Not surprisingly, shares of the company have moved from $1 to $4 in that same time.
While the company has a lot of reasons to believe it should continue to see revenue growth. In fact, analyst project revenue will grow by about 50% this year. The 12-month price target of $10 would be an over 100% gain from current prices.
The company does still not provide consistently positive earnings suggesting that the company may have a little ways to go before it becomes consistently profitable. However, one reason why Celsius may not have exploded more than it has is that it competes in a crowded field. In fact some analysts suggest that Celsius may very well be an acquisition target. That would still bode well for the stock
About Celsius
Celsius Holdings, Inc develops, processes, markets, distributes, and sells functional energy drinks and liquid supplements in the United States, Australia, New Zealand, Canadian, European, Middle Eastern, Asia-Pacific, and internationally. The company offers CELSIUS, a fitness drink or supplement designed to accelerate metabolism and burn body fat; various flavors and carbonated and non-carbonated functional energy drinks under the CELSIUS Originals and Vibe name, as well as functional energy drink under the CELSIUS Essentials and CELSIUS On-the-Go Powder names; and CELSIUS ready-to drink products.
Read More - Current Price
- $27.01
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $50.28 (86.1% Upside)
#8 - SmileDirectClub (NASDAQ:SDC)
The promise of SmileDirectClub (NASDAQ:SDC) is easy enough to understand. One of the problems for the stock has been that the procedure can be expensive and was not covered by many health insurance companies. But that narrative is changing. SmileDirectClub recently announced an agreement with Anthem (NYSE:ANTM) who will now provide in-network insurance.
This adds to the previous agreements the company has reached with UnitedHealth Group and Aetna. CEO David Katzman cites the adoption of telehealth as a key reason for the company’s opportunity. Said Katzman, the agreement with the U.S. insurance providers confirms that “consumers expect a solution that allows them to receive care using remote technology that protects their health and safety.”
It’s a big if, but if one of the results of the Covid-19 pandemic is that consumers opt toward SmileDirectClub’s business model which allows patients to get their aligners without having to visit a dentist or orthodontist, then the stock may have plenty of room to run.
About SmileDirectClub
SmileDirectClub, Inc, an oral care company, offers clear aligner therapy treatment. The company manages the end-to-end process, which include marketing, aligner manufacturing, fulfillment, treatment by a customer's dentist or orthodontist, and facilitating remote clinical monitoring through a network of orthodontists and general dentists through its proprietary teledentistry platform, SmileCheck in the United States, Puerto Rico, Canada, Australia, the United Kingdom, New Zealand, Ireland, Hong Kong, Germany, Singapore, France, Spain, and Austria.
Read More - Current Price
- $0.00
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
One of the problems with investing in inexpensive stocks is the belief that a stock that a high price means a stock is good, and a low price means that a stock is bad. That can be true, but experienced investors understand that a stock’s price and its value are very different things.
A stock that trades at $150 could decline by 25% and investors will herald it as being “on sale”. However, when the same price movement occurs on a stock that is $10 or less, the stock can be seen as untouchable. But stocks move for a variety of reasons. And at times like this, when a black swan event dominates the news, good stocks can get punished simply because investors are trading on the news.
But rather than scare you away from buying low priced stocks, this is just a reminder to do your homework. The companies listed in this presentation have catalysts that may allow the stocks to move up significantly as the economy continues to re-open.
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