3 Under-$5 Deep Value Stocks That You’ve Never Heard Of
We all know the market recovery over the past few months has been unequal, with a handful of big tech stocks stealing the spotlight. These so-called “Magnificent Seven” tech giants have driven the rally, fueled by explosive AI and cloud computing growth. While I believe these technologies will continue expanding into new industries for years to come, this inequality can’t last. Even optimistic projections suggest many of the magnificent seven are overvalued. Sooner or later, investors will shift their positioning toward overlooked stocks ripe for gains.
Quietly operating under the radar, these businesses have built sturdy foundations and are poised to profit when the spotlight shifts. Before the herd catches on, let’s explore three little-known stocks that look ready to pop.
Why the focus on under-$5 stocks? Simple – these stocks offer retail investors like us huge upside potential. With share prices in the single digits, triple-digit returns are possible when momentum builds. Let’s take a look!
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Thoughtworks (TWKS)
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Thoughtworks (NASDAQ:TWKS) has faced substantial hurdles over the past few years, with its stock plunging after the company’s IPO in 2021. However, the bleeding seems to have stopped, and a turnaround could be in the works as shares have climbed back above $4.50 at the time of this writing. I believe a much loftier valuation is possible, since software firms tend to garner premium multiples. Additionally, Thoughtworks is approaching profitability, which should prompt investors to bid its stock higher.
The main drag on Thoughtworks is its debt load. But restructuring deals have been convincing enough to lift shares recently. Moreover, rate cuts are likely in the next months, which would ease the company’s $340 million burden, as Thoughtworks could theoretically roll over its debt at more favorable terms.
Importantly, analysts now estimate the company’s earnings per share could almost triple from 2023 to 2025, rising from 13 cents to 33 cents at the midpoint of the target range. Based on these projections, the company’s forward price-earnings ratio would drop to just 14-times 2025 earnings. Sales are also expected to recover at double-digit clips by then. With a forward price-to-sales ratio of 1.27-times, Thoughtworks looks very cheap for a software play.
Taboola.com (TBLA)
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Taboola (NASDAQ:TBLA) is a leading recommendation platform for the open web, powering suggestions across news sites, blogs, social media, and e-commerce. Like Thoughtworks, the company has also endured recent troubles. Advertising names were among the hardest-hit stocks from late-2021 through mid-2022 as companies cut marketing budgets. But the bleeding stopped, and Wall Street now seems more comfortable with risk assets. Taboola has since rebounded 184% off its 2022 trough, and I think much more upside lies ahead.
Why the optimism?
Well, Taboola just raised its forward profitability and cash flow guidance on improved cost visibility. Specifically, management reiterated its target for $200 million in adjusted EBITDA for 2024. The company’s trailing twelve-month free cash flow hit $55 million, or 3-times the prior year, and 2024 is expected to see the company deliver more than $100 million. Those are some strong cash flow numbers, and support a much higher valuation.
If that wasn’t enough, analysts also predict the company’s earnings per share will surge from 4 cents in 2023 to 48 cents in 2025. That implies a forward price-earnings ratio of just 10-times for 2025. Revenue should grow 33% in 2024 and 23% again in 2025. Even based on 2023 sales, the company’s price-sales ratio sits at 1.1-times. To me, TBLA stock looks very attractively priced as a promising value play ready to rebound.
Superior Drilling Products (SDPI)
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Superior Drilling Products (NYSEMKT:SDPI) refurbishes PDC drill bits and other tools used in the oil, gas, and mining sectors. The company operates a state-of-the-art PDC facility with an eye on expanding its market share to become a premier drill components manufacturer. At first glance, this chart looks rather boring. Indeed, shares have ping-ponged near 70 cents for years, aside from occasional short-lived spikes above $1 per share. However, several dynamics could fuel a breakout and multi-bagger returns from current levels.
For one, Superior Drilling is nicely profitable with a strong balance sheet. It trades at just 10-times forward earnings with 50% EPS growth estimated next year and 15% revenue growth annually after that. These are impressive metrics, indeed.
But the biggest catalyst, in my view, hinges on U.S. politics (yes, I apologize for bringing it up!). One can’t deny that polls and current trajectories suggest Trump may prevail in 2024, barring his removal from ballots. He has trumpeted drilling expansion as a central campaign pledge. Thus, SDPI stock could thrive in the coming years if this scenario unfolds.
Predicting election outcomes years in advance is hardly straightforward. However, the drilling industry would receive big-time tailwinds under specific leadership changes in Washington. That potential gives SDPI stock an intriguing risk-reward setup at current levels, in my opinion.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
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