U.S. markets closed

9 Best Cheap Stocks to Buy Now Under $5

Mark Reeth

Inexpensive stocks for the price of a Happy Meal.

Even though investors are always looking for a bargain, many are wary of buying shares of companies priced at $5 or lower. But just because a stock's price is low doesn't mean it's a bad investment. In fact, many stocks under $5 represent a unique opportunity for the discerning investor. There are inherent risks with investing in penny stocks -- volatility tends to be higher when shares cost so little, and pump-and-dump scams are a real threat. But greater risk can lead to greater reward. If you're willing to do the research, you can find some diamonds in the rough at extremely reasonable prices. From energy companies to real estate investment trusts, marijuana producers and more, here are nine of the best cheap stocks to buy now under $5.

Plug Power (ticker: PLUG)

Plug Power is an excellent example of the volatility investors may experience when they buy stocks beneath $5 -- in the early months of 2020, shares of Plug Power rocketed up over 80%, only to suffer 50% losses shortly thereafter. While speculators may have enjoyed the pop and drop, true investors would be wise to buy and hold Plug, which makes hydrogen fuel cells for commercial vehicles. Plug's fuel cell shipments have increased dramatically over the last two years, and the company recently announced a partnership that will usher the world's first fuel cell-powered, zero-emission commercial trucks onto the road. This opens Plug to new business opportunities as companies around the world turn toward clean energy solutions.

Colony Capital (CLNY)

Colony Capital is a real estate investment trust, commonly referred to as a REIT. With more than $50 billion in assets under management, CLNY provides investors with both a growth opportunity and a massive dividend. Until recently, the largest segment of Colony's portfolio was in industrial properties -- specifically warehouses. Within the last year, however, Colony has pivoted away from that sector, selling off its Colony Industrial segment in place of a new strategy: digital real estate. Colony is betting big on digital infrastructure, including data centers, cell towers and more than 130,000 miles of fiber. Though it may be a while before Colony's investments in the future of connectivity pay off, investors should be rewarded for sticking with Colony. That's considering the 11.1% dividend yield and looming rollout of 5G.

RealNetworks (RNWK)

At first glance RealNetworks looks like a blast from the past. After all, the company bought the RealPlayer plug-in back in 1995 and acquired Napster, the darling of the '90s, in January 2019. Legacy brands aside, RealNetworks makes the list of the best cheap stocks to buy under $5 as it looks to the future with products including mobile games and facial recognition software. Last year, RNWK's free-to-play mobile games segment grew by 18% year-over-year, while its acquisition of Napster cut RealNetworks' net loss down to $20.1 million. According to the company's CEO Rob Glaser, the company's Secure Accurate Facial Recognition software is a top growth focus at the company, and it's easy to see why. New customers in Brazil plus a partnership with Nvidia (NVDA) to integrate SAFR into Nvidia's hardware indicate strong long-term opportunities.

KushCo Holdings (KSHB)

A gold rush is a great time to be in the pick and shovel business, and while the rush for investing in marijuana companies has cooled considerably in recent months, KushCo is still doing roaring business. KushCo sells pop-top bottles, vaporizer cartridges and accessories, packaging solutions, retail services and even brand strategy and marketing to thousands of cannabis companies globally. Despite those cannabis companies continuing to struggle with legalization woes and public scrutiny over vape pens, KushCo saw revenue jump 38% in the first fiscal quarter as gross margins expanded from 12.8% to 20.8%. The future looks bright for KushCo as it recently entered the cannabidiol and cannabis equipment financing business and opened a legal hemp brokerage business.

OrganiGram Holdings (OGI)

Hopes are high that cannabis 2.0, the legalization of marijuana-derivative products like edibles and beverages, will drive growth across weed stocks. One company that looks particularly well-positioned to capitalize on this market expansion is OrganiGram Holdings, a leading producer of cannabis-infused chocolate products. Instead of chasing revenue like its competitors, OrganiGram has focused on operational efficiency and high-quality products. The result is that the company is one of the few in the industry with consistent profitability, and its most recent quarterly results saw 102% revenue growth. Those results, plus its strong cash position, should allow OrganiGram and its investors to have a much better 2020.

Kosmos Energy (KOS)

The oil & gas industry is down big in the early innings of 2020. But there are still plenty of opportunities to be found in the sector. One of them is Kosmos Energy, which focuses on offshore production in Ghana, Equatorial Guinea and the Gulf of Mexico. While shares of the company have slid in recent months, Kosmos looks well-positioned to thrive longer-term following seven straight years of greater than 100% of production replacement. Last year, Kosmos reported $250 million in free cash flow while simultaneously reducing its leverage, setting itself up nicely to weather the industry's poor economics. A dividend yield of 6% should keep investors happy even if Kosmos faces near-term industry headwinds.

Ambev S.A. (ABEV)

Ambev, the largest beer brewer in Latin America, makes the cut again this year despite a year-over-year decline in its share price. Much of that decline can be attributed to macroeconomic issues in Brazil, its largest market. But things appear to be turning around for Ambev, which recently posted a nearly 8% increase in year-over-year revenue. Ambev is following parent company Anheuser Busch InBev's (BUD) lead with a focus on sustainability, announcing that it will eliminate plastic pollution in its packaging by 2025. The beer company is also striking a deal to build a wind farm to power all of its beverage plants in Northeastern Brazil. Whether or not those efforts translate to profits for investors remains to be seen, but a dividend yield of 3.6% should keep investors coming back for more.

Express (EXPR)

Investors love a comeback story, and Express has all the makings of quite the comeback. In the last year, shares of the clothing retailer plummeted, losing more than 30% as the company struggled to keep up with the competition in a difficult, bargain-focused retail clothing market. But last May the company appointed a new CEO, and by January he and the management team at Express announced a plan to turn things around. Dubbed the EXPRESSway Forward, the plan calls for closing 100 of its 600 stores by 2022, as well as laying off 10% of its headquarters and New York staff, leading to $80 million in cost savings. These measures, combined with a relaunch of its loyalty program, improved e-commerce operations, and a renewed focus on remaining stores may just lead Express, and investors, back to profitability.

SunOpta (STKL)

There are plenty of long-term trends moving markets nowadays that investors can capitalize on, and one of the biggest is organic foods. What makes SunOpta an appealing investment in this industry is its range of products -- the company offers everything from organic and non-GMO animal feed to raw materials, organic ingredients and consumer-packaged products. This diversity of offerings has allowed SunOpta to ride the wave of investor sentiment nicely, with shares up more than 10% year-to-date. The company has undergone some restructuring this year, establishing a plant-based foods and beverages segment as well as a fruit-based foods and beverages segment, and investors would be wise to capitalize on SunOpta.

The best cheap stocks to buy for less than $5 in 2020.

-- Plug Power (ticker: PLUG)

-- Colony Capital (CLNY)

-- RealNetworks (RNWK)

-- KushCo Holdings (KSHB)

-- OrganiGram Holdings (OGI)

-- Kosmos Energy (KOS)

-- Ambev S.A. (ABEV)

-- Express (EXPR)

-- SunOpta (STKL)

More From US News & World Report