by Jeff Reeves | March 18, 2014 3:10 pm
If you’re looking for cheap stocks to buy now, you don’t necessarily need to scrounge for microcap penny stocks with no profits and thin volume. In fact, some of the best cheap stocks right now include companies valued at as much as $8 billion, companies that are soundly profitable and companies that boast clients including Microsoft (MSFT) and Google (GOOG).
If you’re looking for the best cheap stocks to buy now, you have to do some research instead of just chasing share price. But while I always encourage all investors to do their homework after checking out initial recommendations, the following list of cheap stocks to buy should get you started on your quest to invest in strong companies that have a low share price.
This list of nine cheap stocks includes tech stocks, energy stocks and financial stocks. It also includes income investments, with dividend payers yielding as much as 4%.
Again, you don’t have to settle for microcap penny stocks when looking for the best cheap stocks to buy. Instead, start with this list of stable companies with low share prices and you’ll see what I’m talking about:
Market Cap: $880 million
AK Steel (AKS) produces steel for use in industrial and electrical applications.
This stock was gutted by a one-two punch of the commodity crash of 2008 and the Great Recession in the wake of the financial crisis, with its price plummeting from over $70 a share to a low of around $6 in about nine months. But after bottoming at less than $3 a share last year, prices have more than doubled to current levels.
The worst of the commodity crash seems to be over, with stable pricing for materials and most materials stocks right-sized for weaker demand out of China and the West. AK Steel is forecast to finally return to profitability in 2014 as a result.
There is undoubtedly risk here, since AK Steel is a cyclical stock that does best amid strong industrial and manufacturing demand; Case in point, a lot of strength in AKS stock recently has come from a resurgent auto sector and increased demand for a steel as a result.
Thus, a rollback in demand could result in a rollback in AKS … but if you believe that the worst is behind us, this materials stock will give you a good foothold in the resurgence of global manufacturing in the years ahead.
Market Cap: $200 million
The Female Health Co. (FHCO) is a very small stock that averages about 150,000 shares daily — so make sure you understand the potential for volatility before you even consider investing. But the strangeness of this stock makes it too enticing to leave out.
Female Health’s main business is reducing risk for women through consumer health products, primarily the FC2 female condom. And it’s a good business, too — Female Health is soundly profitable and has partnerships with institutions like public health clinics and not-for-profits.
Whatever you think about the product, the stock has paid a dividend like clockwork since 2010, increasing it to 7 cents quarterly last year for a yield of more than 4%. Sustained sales and profits since the company went public in 2009 show that while it hasn’t created a breakout product, FHCO can at least deliver consistent enough income to deliver a steady dividend.
And since FHCO is paying about half of next year’s expected earnings in dividends, the payout is sustainable enough to make investors feel comfortable with a 4% yield going forward. Shares are flat in the last year or so, but given the nice income, there is a good hedge against further volatility in this long-term healthcare play.
Market Cap: $545 million
Industry: Construction & Engineering
Great Lakes Dredge & Dock (GLDD) is a pretty unsexy company. For those unfamiliar with the process, dredging involves underwater excavation. Typically this involves either deepening shipping lanes to facilitate travel, or moving sand in beach replenishment efforts to protect against erosion. Great Lakes serves not just its namesake region, but also the East Coast, West Coast and Gulf of Mexico region.
Now, GLDD has had a rough go since its initial rebound during the 2009 snapback. Great Lakes has had trouble staying above $9 for long, and last year the stock saw trouble as earnings releases kept getting pushed back — culminated at last by a restatement of two quarters of results, and the resignation of the current COO and former CFO Bruce Biemeck as a result.
However, after shares tumbled by about a third to a low under $7, they staged a fairly steady rally back to about $9 across the last year or so. What with increased industrial and manufacturing business in the U.S., shipping lanes are increasingly important and governments are finally seeing a recovery in their tax base to allow dredging projects to take place.
GLDD clearly is a cyclical play, as much of an infrastructure investment as a highway company. But while the 2013 earnings restatement created problems for the stock, that’s soundly in the rear-view mirror, and investors can capitalize on the recovery and pessimistic sentiment by placing a bet on GLDD in 2014.
Market Cap: $5.6 billion
Industry: Internet Retail
Groupon (GRPN) has staged a pretty impressive turnaround in the past year. After bottoming under $3 in late 2012, embattled founder and CEO Andrew Mason quit and a cascade of structural changes and analyst upgrades resulted in the stock surging across 2013.
Lately, however, that turnaround has lost a bit of momentum as revenue beat expectations but guidance was disappointing at the end of February. However, the stock is still up more than 50% in the past 12 months even after a sharp sell-off on this news.
Look, the history of Groupon is not good. But the company appears to be soundly on the path to profitability and remains a pretty attractive acquisition target at the very least as big players like Google and Amazon (AMZN) enter the “daily deals” space.
Plus, investors that can look past some of the bad press to the tremendous potential of this online couponing stock could cash in big time in the years ahead. There’s no doubt that this kind of deals business remains in demand with consumers and will continue to be an important part of the advertising and marketing space going forward. And Groupon remains one of the biggest players in the space.
With a forward price-to-earnings of about 30, GRPN is still risky. But given its history and investor pessimism, you still have time to enter at a good price and ride the wave higher.
Market Cap: $448 million
Industry: Business Services
CBIZ Inc. (CBIZ) is a professional services company that helps businesses and government agencies deal with their payrolls and regulatory requirements. A short list of services CBIZ provides includes managing employee benefits, helping with taxes and streamlining billing and accounts receivable.
CBIZ is very much a cyclical investment, as the company is heavily reliant on broader business trends to lift its top line. The company has really struggled to find growth over the last few years, but shares of CBZ stock have run up about 40% in the last 12 months in anticipation of a better environment ahead. With unemployment on the decline and more businesses looking to hire, CBIZ services will be in increasing demand.
Furthermore, in February, CBIZ acquired Ohio-based Lewis Birch & Ricardo, a professional tax advisory and consultancy firm. The deal will add about $10 million in annual revenue to CBIZ. That isn’t huge, but considering the company did under $700 million in total sales last year, this acquisition will add a few percentage points of growth.
And if the economy keeps humming along? Well, the deal will give CBIZ even more leverage to profit from increased demand for its services.
Market Cap: $447 million
Lionbridge (LIOX) is a perfect small-cap play. The stock is up more than 80% in the last 12 months, showing strong momentum, but remains soundly under $10 a share. The company is soundly profitable and has posted 11 consecutive quarters of revenue growth, according to Standard & Poor’s data.
So what does Lionbridge do, exactly? Well, the company focuses on language translation software, with major clients that include Microsoft and Google, among others. In the past few years, the company has grappled with cutbacks and soft enterprise spending but has managed to retain enough big firms and filled in the blanks with smaller ones to keep the business moving in the right direction.
Case in point: LIOX’s recent acquisition of key China clients that will deliver an additional $3 million in revenue — news that sparked a nearly double-digit rally in one day for the stock.
Margins could improve along with sales in the coming quarters to boost this cheap stock even higher. LIOX just reported record quarterly revenue in its Q4 2013 report, for instance, showing 12% year-over-year growth. Net income also nearly doubled over 2012 numbers.
While there’s always the risk that businesses will spend less on IT, recent improvement shows that LIOX has momentum on its side right now and remains a hot tech play. Furthermore, translation technology in this age of global internet connectivity remains a great opportunity for growth.
Market Cap: $1.4 billion
Exco Resources (XCO) has admittedly had a rough 12 months or so. The onshore oil and natural gas play is focused mainly on shale operations in east Texas, north Louisiana, Appalachia and the Permian Basin in west Texas. And with dirt-cheap natural gas prices and oversupply issues, it has been a rough going for a host of energy stocks, including XCO.
The good news, however, is that Exco is the right size for these lean times and should be able to bounce back in 2014.
For instance, in fiscal 2012, EXCO cut back by reducing drilling rigs from 24 to just 5, as well as slashing more than 60% of its contractors and one-sixth of its full-time workers. The restructuring hit the company hard, but these efforts are putting it back on track. Revenue has increased year-over-year for four consecutive quarters, and the company is projected to return to profitability this year.
In the meantime? XCO stock yields nearly 4% in dividends — a decent incentive to be patient with Exco stock.
Market Cap: $8.1 billion
One sector of the stock market that has big potential in 2014 is the banking sector. In the last six months, the Financial SPDR (XLF) is up about 8% — roughly twice the Dow Jones Industrial Average.
Regional bank stocks are some of the best-performing stocks among the financial sector. Among them is Huntington Bancshares (HBAN), which is up by about 15% in the past six months.
Broadly speaking, smaller banks can be a bit safer than the big players like Bank of America (BAC) or JPMorgan Chase (JPM) because they aren’t exposed to the same risks of massive lawsuits over subprime mortgages, and they don’t operate aggressive trading desks that could cost them a fortune if the bets go bad.
Furthermore, as big bank stocks face the yoke of increased regulation and less growth in the years ahead, the easiest way for them to grow is via acquisitions — meaning smaller players like HBAN are very attractive as a way for major financial stocks to increase their assets and regional footprint.
Market Cap: $8.3 billion
Advanced Semiconductor Engineering (ASX) builds and distributes integrated circuits and other electronics. While that’s not as sexy as other chipmakers that play to mobile, it’s still a good business, considering the general demand for microchips in everything from cars to computers to TVs.
The Taiwan-based company is close to many Asian electronics manufacturers. And regardless of whether those manufacturers crank out something as hot as the iPhone from Apple (AAPL), ASX still will have a strong baseline simply because of how many high-tech devices exist in the world.
Moreover, ASX is not a chip designer, so it doesn’t have the same big margins as the companies who create the next hot chip … but it also doesn’t have the same risk. Advanced Semiconductor’s diverse business makes it a stable player for the long haul, and not as finicky as companies that rely heavily on laptops an desktops. That stability also is reflected in the form of a 3.3% dividend yield.
In a post-PC age, there are assuredly sexier tech plays out there. But ASX is up 33% in the last year and boasts a decent dividend. You’d be hard pressed to find a cheap tech stock that packs the same punch.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
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