In the stock market, sometimes you get what you pay for. High-priced stocks like Apple (NASDAQ:AAPL) have paid off nicely for investors in the last several years, and cheap financials like Bank of America (NYSE:BAC) remain volatile and risky plays … even if financials seem to have some spring in their step to start 2012.
But not all cheap stocks are ugly investments that have been rightfully beaten down. Some low-price shares are screaming bargains that are worth your cash.
The three companies listed here aren’t penny stocks that trade on sentiment alone. They each have a market cap of over $2 billion and respectable trading volume that regularly tops 3 million shares daily. They can be risky, of course, but they aren’t the all-out gambles like many low-priced microcaps touted by pump-and-dump artists.
Here are three low-priced stocks to consider:
In July of 2011, Wendy’s (NASDAQ:WEN) completed the sale of its Arby’s Restaurant Group to a wholly owned subsidiary. The move backed out some revenue, and restructuring costs have been a short-term drag. But the sale has allowed Wendy’s to focus on its healthy chain and not get bogged down in the struggling Arby’s brand.
Wendy’s sales have continued to grow, allowing the quick-service restaurant to dethrone privately held Burger King from its status the No. 2 burger chain in the U.S. In 2011’s third quarter, same-store sales increased 1.8% at Wendy’s North America Co.-operated restaurants. The October launch of the Dave’s Hot ‘N Juicy burgers line has also allowed Wendy’s to tap into the bigger margins that come with premium menu items instead of the race to the bottom on cheap eats.
Wendy’s poses risks, of course. Food inflation is hurting the bottom line. And Wall Street is apparently already baking in growth, with an inflated price-earnings ratio of around 24 – compared with 19 for Yum! Brands (NYSE:YUM) and 17 for McDonald’s (NYSE:MCD).
However, Wendy’s has a lot to be enthusiastic about. The company estimates operating margins will rise from 7.3% to 9.1% in 2012. It’s remodeling stores. It’s updating its menu with healthy and fresh options like skin-on fries seasoned with sea salt. And it’s taking advantage of Burger King’s listlessness as private owners 3G Capital focus on cutting costs and streamlining operations instead of investing in growth.
To top it off, Wendy’s is now run by Emil Brolick — who successfully rejuvenated Yum through international expansion. If Wendy’s can squeeze out growth both at home and abroad, it will do well in 2012.