In most cases regarding equity investing, you want to stay with established names. Although cheap stocks to buy may tempt you psychologically – you get more shares for your buck – they’re usually not reliable over the long haul. On the other hand, blue chips, with a patient enough timeline, have consistently returned solid gains.
That said, on certain occasions and for risk-tolerant investors, cheap stocks do have a place in your portfolio. For instance, many lesser-capitalized companies fly under the radar. Thus, they might move in ways that don’t necessarily correlate with broader benchmark indices. In a bull market, that spells trouble. However, in uncertain times like these, cheap stocks to buy may offer an unexpected hedge.
Second, the most obvious appeal for cheap stocks are their price tags. If you look at your usual suspects in the S&P 500 or the Dow Jones, many of these equities have high paper values. And for some giants of industry like Amazon (NASDAQ:AMZN) or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), they feature four-figure prices. Psychologically, it’s more challenging to justify spending so much money for one share of a company.
Third, and on a related point, cheap stocks to buy are available for virtually all investors with a living wage. Sure, you can buy the aforementioned alpha dogs through brokerages specializing in fractional equity ownership. However, you’d have to go through a middle man, which may not make sense for some investors.
Finally, I think cheap stocks are fun. Because they don’t generate as much attention, they force you to do your own digging, which offers intrinsic value.
And if you don’t have any ideas of your own, here are my picks for cheap stocks to buy.
Source: Daniel Spiess via Flickr
Stereotypically, most people associate cheap stocks to buy – especially those under $5 – with soon-to-be worthless companies. However, that’s not always the case, as beverage specialist Ambev (NYSE:ABEV) demonstrates. A Brazilian brewing company under the Anheuser Busch Inbev (NYSE:BUD) umbrella, ABEV stock is a few cents shy of breaking above $5.
At this price point, ABEV stock is what most analysts would consider a penny stock. Still, I really like the value proposition here for two reasons. First, beverage experts predict that the Latin American beer market in which Ambev plies its trade will grow to nearly $125 billion in 2025. Moreover, consumers in this region have developed a taste for premium beers, which suits ABEV stock well.
Second, Latin American demographics favor investments like ABEV stock. That’s because this region features the greatest proportion of young people anywhere in the world. It is true that many economic challenges exist there, however, we’re talking about beer, which isn’t exactly a massive outlay of cash.
Genworth Financial (GNW)
Genworth Financial (NYSE:GNW) is a very interesting name among cheap stocks to buy for several reasons. As a former subsidiary of industrial conglomerate General Electric (NYSE:GE), GNW stock has some storied history. More importantly, Genworth is principally a mortgage insurer. With relative stability in the domestic economy, GNW seems like a solid bet for a penny stock.
But these are really side issues for the true reason to speculate on GNW stock. Almost three years ago, China Oceanwide Holdings announced their intent to buy out Genworth. But since then, the proposed deal has been extended multiple times pending regulatory approval.
In a bid to accelerate the process, Genworth recently divested its Canadian unit for 2.4 billion CAD. That skyrocketed the GNW stock price as the markets saw the move as a strong positive.
That said, the deteriorating relationship between the U.S. and China is a problem. Thus, if you’re going to gamble, gamble moderately.
Kinross Gold (KGC)
As I alluded to earlier, cheap stocks to buy are usually that way for a reason. And while they’re superficially attractive, their fundamental problems tend to outweigh the positives over the long run. However, I’m reasonably confident that Kinross Gold (NYSE:KGC) and KGC stock can prove to be that rare case where a cheap equity has a favorable risk-reward profile.
The best part about KGC stock is that I don’t really need to spend too much time arguing the bull case: geopolitical underpinnings do enough of that. As you’re all aware, the U.S.-China trade war recently took a turn for the worst. And probably in preparation for this diplomatic downgrade, the Federal Reserve cut benchmark interest rates.
Therefore, we have a situation where more money is chasing after fewer goods. That’s very positive for gold and silver bullion, which have been disappointing investments for years. Further, I believe the industry tailwinds are strong enough to overcome the individual challenges impacting KGC stock.
Lloyds Banking Group (LYG)
If we’re headed toward a correction in the markets, I’m not sure if I want to hold finance-related investments. That’s especially the case regarding cheap stocks in the financial industry. Nevertheless, I believe speculators should take a long look at Lloyds Banking Group (NYSE:LYG). Even in times of turmoil and confusion, I think LYG stock has favorable tailwinds.
First, let’s talk about the obvious: LYG stock is one of the U.K.’s most storied investments. You think you own shares of an old company? Lloyds’ heritage goes back over 250 years. To put that into perspective, the U.S. wasn’t a thing back then. And although heritage is no guarantor of long-term viability, I don’t think the British would let Lloyds crumble.
Second, LYG stock is incredibly undervalued. Levering an enterprise value of $113 billion, its current price-earnings ratio is less than 10-times trailing earnings. Sure, business has not gone well for the U.K. over the years. However, the selloff seems a bit overbaked.
One of my favorite marijuana-based cheap stocks to buy, Hexo (NYSE:HEXO) has incurred severe choppiness this year. And in my best attempt to catch a falling knife, I bought shares around mid-July. That did not serve me well, as Hexo stock veritably plunged, at one point dipping below $4.
Admittedly, holding Hexo stock has been a painful experience. But I genuinely believe that the legal marijuana sector will spark a radical paradigm shift in the markets. During this time, the extraordinary bullishness should lift all boats, including smaller outfits like Hexo.
And who knows? We might be witnessing this radical transformation as you read this. Currently, Hexo stock stands just a few pennies shy of $5. I don’t think it will take much to move the needle north.
Hexo has an attractive partnership with Molson Coors Brewing (NYSE:TAP) to develop cannabis-infused drinks. This potentially gives the company an important foothold in the American cannabis market, where attitudes are shifting positively toward legalization.
Sibanye Gold (SBGL)
At time of writing, Sibanye Gold (NYSE:SBGL) is just a penny over $5. Technically, that disqualifies it from this list of cheap stocks to buy. However, I think most readers will agree with me that it’s close enough to warrant consideration. Furthermore, SBGL stock fundamentally offers something that many other mining investments do not.
First, let’s talk about why SBGL stock took a severe tumble. Sibanye operates mining projects in multiple parts of the world, including the volatile South African market. And unfortunately for stakeholders, a labor dispute involving the underlying company’s Lonmin mine caused the volatility. While labor unions demand higher wages, Sibanye claims that doing so would make the project economically unsustainable.
Given how ugly these disputes can get, I can understand why people would avoid SBGL stock. However, because the precious metals market is rising sharply, there’s a chance that both sides can reach an agreement later.
Finally, Sibanye is one of the largest producers of palladium. This is one of the rarest metals on earth, and its spot price reflects it.
Atlantic Power (AT)
In most cases, buying utility companies like Atlantic Power (NYSE:AT) make sense for their stable passive income. After all, nothing drives people crazier in this digitalized economy than not having power. Thus, utility firms represent reliable investments. However, AT stock doesn’t quite fit the mold of this industry.
For one thing, there’s the fact that Atlantic Power doesn’t pay out a dividend. Thus, this is a purely capital gains-based play. While that might startle some investors, keep in mind that the AT stock price is only $2.40. Therefore, we have some room for growth.
Additionally, Atlantic Power has a very stable business. As an independent power producer, the company owns power generation assets in 10 states and two Canadian provinces. Furthermore, it usually does business with only large, creditworthy customers on extended contracts.
Finally, AT stock is currently at a low point. Earlier this year, shares briefly exceeded the $3 level. Thus, speculators have a chance to grab a quick profit.
Blueknight Energy Partners (BKEP)
Due to the recent and rational decline in oil prices, investors may initially want to avoid Blueknight Energy Partners (NASDAQ:BKEP). Plus, the fact that it’s one of the cheapest of cheap stocks to buy doesn’t do it any favors. However, not all energy companies are built the same. Because of the variables involved, you may want to give BKEP stock a second chance.
Primarily, I say this because Blueknight’s main business is in midstream operations. Specifically, the company provides storage and processing services for crude oil products. This distinction separates BKEP stock from upstream and integrated energy companies in that Blueknight is less susceptible to price volatility. No matter what happens in the energy market, people still require energy to move around. Thus, midstream companies act as a critical pivot point toward the end delivery to the consumer.
Plus, BKEP stock has been rising steadily since the first half of this April. With a share price of a little over a buck, Blueknight is certainly a tempting opportunity.
XCel Brands (XELB)
Although I’m no expert, fashion is a brutal industry. Consumer trends can change on a dime. Therefore, a supply chain risk exists in that a product may arrive to the retail floor too late. But XCel Brands (NASDAQ:XELB) would like to change investors’ perception of this sector.
First, what does XCel do? I must say that the company does a terrible job of explaining its own business. Fortunately, we have CNBC contributor Krystina Gustafson, who describes the organization as a fast-fashion retailer like Zara or H&M, but geared toward upscale apparel and products.
More critically for XELB stock, XCel hopes to disrupt the fashion industry by cutting the time involved from getting concept products into retail stores. Typically, a fashion company will take several months from blueprinting to distribution. XCel has dropped this process down to six weeks.
You might think that’s a game-changer for the industry, and it just might be. However, the risk (and the opportunity) is that the markets don’t see it that way. Currently, XELB stock is trading hands for less than $2.
BioDelivery Sciences International (BDSI)
I believe that BioDelivery Sciences International (NASDAQ:BDSI) stock has a lot of potential if you’re willing to give it some patience. Also, it would help that you ignore the implications behind its sub-$5 price tag.
Let’s focus on the good news. BioDelivery Sciences has two main drugs in its pipeline: Belbuca and Bunavil. The former focuses on addressing chronic pain, which represents a major medical problem in the U.S. The latter addresses opioid dependence, which has rapidly escalated into a nationwide crisis.
I’ll grant you that there’s something not right about a pharmaceutical company providing a solution to a pharmaceutical-based problem. However, I’m just going to look at this from a purely investment point of view. Demand for these two products, and especially for Bunavil, supports the speculative case for BDSI stock.
As of this writing, Josh Enomoto is long LYG stock, HEXO stock, gold, silver, and palladium.
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