I recently maligned the idea of investing in penny stocks and micro-caps as a high risk gamble that no investor should be taking. Many people spouted off on the matter, as I expected with this hot-button topic. But what I neglected to anticipate was the natural question from the cheap stock investing crowd.
Namely, “If microcaps and penny stocks are out… what are some of the legitimate stocks trading for cheap per-share prices that you can recommend?”
For starters, let me state unequivocally that share price does not matter. In fact, I just wrote up a list of 5 stocks over $300 a share that I think are worth every penny, and I encourage all investors to give that list a serious look.
But I must admit that the desire to buy cheap stocks is a popular one, so I decided to comb through the market to find some potential investments. Mind you, the following list is not a group of recommendations — simply a list of legitimate stocks with cheap share prices that you should use as a jumping off point, and research yourself.
My methodology was to limit picks to a minimum of $300 million in market cap and 200,000 in daily share volume (and any less than 500,000 is expressly noted below). That would provide some measure of liquidity and stability. I also demanded the companies be profitable, not start-up phase biotechs or other money-bleeding enterprises. I then started crunching numbers for some of the more attractive companies and sectors in this list of a few hundred companies, and the result are these 15 picks with my few sentences of insight to explain why I think each stock is a “real” investment.
It’s hardly a sure thing and definitely not an intensive investigation into each stock, so please do your own research or post follow-up comments below. But disclaimers aside, I think this is at least a good place to start for investors looking for cheap stocks.
So if you’re hunting for bargains, begin by browsing these 7 stocks under $5:
Cincinnati Bell (NYSE:CBB) is one of those rare telecoms that does not pay a dividend, so don’t get into this pick because of the income. However, it is soundly profitable and has a reliable customer base.
Last week, Benchmark Co. reiterated its buy rating on shares of CBB with a $6 target on the stock — 50% upside from here. Also, it’s probably not unrealistic to expect a bigger telecommunications company may offer a buyout in the near future — if for nothing other than its Texas data centers.
Shares are up 31% YTD and the company reports earnings on July 30. Be warned, however, that the forward P/E of about 17 is a bit rich considering the industry.
Giant Interactive (NYSE:GA) is an online game developer in China, particularly in the massive online role-playing game space. Think World of Warcraft by Activision Blizzard (NASDAQ:ATVI) or other China gaming stocks like Shanda Games Limited (NASDAQ:GAME).
I won’t pretend to understand its Zheng Tu series since I don’t play video games online (anymore) and I don’t speak Chinese. But generally speaking, this market is seeing big growth worldwide and especially in China as the nation gets more wired.
Giant Interactive has seen seven straight quarters of improving revenue, though bigger profits have been harder to squeeze out. The forward P/E is less than 6 based on 2013 earnings. GA stock reports earnings on August 6, and is up about 18% year-to-date.