Cheap stocks don't have to be low-quality stocks
The best cheap stocks to buy now come in all shapes and sizes. Some of them are sleepy value stocks that have been overlooked, some are fast-growing small-caps and others are battered picks that investors have unfairly oversold.
I personally don’t put much stock in nominal share price, so I think the best cheap stocks to buy now should first and foremost be strong companies. After all, a low share price is sometimes the result of obvious flaws in a business; conversely, plenty of high-priced stocks like Priceline (PCLN) and Chipotle (CMG) have had no problem putting up impressive runs higher despite a theoretically “expensive” share price.
When it comes to the best cheap stocks to buy now, I think price is far less important than the balance sheet and earnings multiples.
But if you’re one of the many investors who care deeply about cheap stocks with a share price under $10 so you can buy a large lot of shares, consider these picks because of their strength and outlook — not just the ticker print.
Cheap Stocks to Buy Now: First Bancorp (FBP)
Price Per Share: $4.54Sector: Financials
YTD Performance: -23%
First Bancorp (FBP) is a small regional bank serving Puerto Rico. And as you can expect, fears that Puerto Rico’s debt levels are unsustainable and that the U.S. territory will default have caused many to worry that this island nation is simply another version of Greece that is much closer to home.But there are many reasons why Puerto Rico is different, not the least of which being its close ties to America. The island commonwealth is formally a territory of America, its currency is the dollar, and the government of Puerto Rico is effectively up to Congress even if there are local officials elected on the island itself.
While the U.S. could theoretically just wash its hands of the island nation, the move would be messy — and given how the Greece debacle has created strife and uncertainty regarding the eurozone, American officials certainly don’t want that kind of mess.
Bankruptcies and defaults of governments, while rare, are not unprecedented. And life goes on both for the residents and the businesses, even if there is some turmoil.
When you look at the precipitous drop in FBP, then, it’s safe to say the market has priced in the worst. And while FBP has some exposure to Puerto Rico’s government debt, the majority of its business comes from business and consumer lending — not speculation on government bonds. Consider that total interest-earning liabilities for the bank totaled more than $10.3 billion at the end of 2014, with about $350 million in “government obligations.” Even if the entirety of that is in Puerto Rican debt and the bank gets zero for it, that’s not the end of the world.
Yes, there will be turmoil if debt fears aren’t resolved. But Puerto Rico’s economy has been struggling for some time so it’s not like there has been a glut of lending that will dry up. FBP has had to do more with less for some time, and I think fears are overblown and provide a huge buying opportunity in FBP as one of the best cheap stocks to buy now.
In fact, I’m so bullish that I must disclose I am a shareholder myself as of this writing, with a personal stake of about 200 shares.
Cheap Stocks to Buy Now: Amarin (AMRN)
Price Per Share: $2.29Sector: Biotech
YTD Performance: +133%
Amarin (AMRN) is one of those high-flying development-stage biotechnology stocks that delivers either a big boom or a big bust to investors.
Thankfully for those who have been betting on AMRN, it appears that this stock is a boomer.
The small-cap biopharmaceutical company is focused on cardiovascular treatments, and gapped up late last year on strong fourth-quarter earnings results, then saw sustained momentum in the spring after a spate of high-profile upgrades. Specifically, in February, SunTrust Robinson Humphrey upgraded the stock to “buy,” then H.C. Wainwright followed in March with its own “buy” recommendation — and a whopping $10 price target! Considering Amarin is still trading around $2.30 right now, that would be an amazing move higher.Considering a narrowed loss in Q4 earnings and strong performance for its high-triglyceride-reducing drug Vascepa, things are looking up for Amarin. Maybe $10 is a bit optimistic, but even a few dollars more per share will mean big profits for savvy investors who buy at these low prices.
Just keep in mind the risky nature of biotech stocks like Amarin. Sure, AMRN could sprint ahead on the strength of its drug pipeline or a buyout premium down the road, but AMRN is one bad FDA trial away from a world of hurt.
If you are OK with this risk-reward makeup that’s common in biotech stocks, Amarin is worth a look as one of the best cheap stocks to buy now.
Cheap Stocks to Buy Now: Standard Pacific (SPF)
Price Per Share: $8.87Sector: Homebuilding
YTD Performance: +22%
When you think of homebuilders, big-name stocks like Toll Brothers Inc (TOL) and PulteGroup (PHM) spring to mind first. But mid-cap Standard Pacific (SPF) is also a good bet for those who are bullish on housing in 2015 and beyond.
Focused on single-family homes, Standard Pacific is a smaller builder that focuses its work mainly in the Southeast, California and the Southwest to cover about 25 different markets.While it may sound risky to bet on a housing recovery continuing from here given the crash and burn for home values caused by the financial crisis, there are many reasons to believe housing will keep going strong in 2015 and beyond. In addition to improvement in wages and employment, home values still have a tailwind even if the pace of property value increases has cooled a bit. Furthermore, many reluctant homebuyers have been lured back into the market as costs to rent exceed the cost to buy in many regions.
Builder confidence is good, and as a result, the all-important measure of new-home starts is also looking good — recently hitting an eight-year high in the rate of permitting. That bodes well for Standard Pacific and other similar stocks.
Since the company is smaller than other builders, Standard Pacific took it on the chin worse than peers during the crisis. But that small scale also has meant the ability to ramp up faster, and SPF stock has snapped back roughly 300% from its 2011 lows!
This is a stock that has improved its operations just in time to capitalize on a continued housing recovery. And after shares took a bit of a breather in 2014, they have started 2015 with a bang — so don’t delay if you want a piece of this housing pie while this stock is still cheap.
SPF is soundly profitable again and trades for less than 12 times forward earnings. So don’t expect this stock to stay in single digits for long. This is one of the best cheap stocks to buy now if you want to capitalize on the continued strength of housing.
Cheap Stocks to Buy Now: Quantum Corp (QTM)
Price Per Share: $1.62Sector: Technology
YTD Performance: -8%
Quantum Corp (QTM) is a data solutions company that provides digital storage and cloud access to files for consumers and businesses. Particularly interesting are some of Quantum’s solutions for healthcare and life sciences companies, including tabulating clinical data for both doctors and regulators to easily review.The small company has been drifting lower in 2015, but that’s after a nice run up in fall 2014 and again in April on strong earnings. The company is profitable, and while QTM has cooled off lately, big earnings surprises encouraged investors during both of these stretches.
Being profitable and posting upwards momentum in earnings means that QTM can post an attractive forward P/E ratio of about 11 right now — a nice bargain for a technology stock, considering the premiums paid elsewhere in the sector for other picks.
Throw in a growing top line, and this data solutions company could be a nice cheap stock for those looking to play tech without paying the big-ticket share prices of some of the more popular names.
