Investors looking for the best cheap stocks to buy sometimes find themselves taking big risks. Namely, the stocks they purchase often are microcap penny stocks that have zero revenue and very thin trading volume.
Consider that earlier this year, the FBI just conducted a massive sting operation to capture penny stock fraudsters — and agents were shocked by the brazen way some folks are trying to manipulate these investments. That’s because cheap stocks that trade at a thin volume on the “pink sheets” are a playground for criminals looking to move the share price of an investment by any means necessary to make a quick buck.
If you’re insistent on finding to cheap stocks to buy now, then, be careful about looking at just share price alone.
There are better ways to find the best cheap stocks, including screening for companies that have substantial sales and relatively stable volume. Sure, there are no guarantees … but when you invest in a cheap stock trading for a decent market cap and a good daily volume, you can have confidence you’re investing in a real company with real potential — not just a sentiment-driven gamble.
I’ve done some analysis based on the latest market data, and there are seven cheap stocks to buy now that I like for less than $10 per share.
They are Plug Power Inc. (PLUG), Castle Brands Inc. (ROX), Hugoton Royalty Trust (HGT), Lake Shore Gold Corp. (LSG), Empire Resorts Inc. (NYNY), AU Optronics Corp. (AUO) and Orexigen Therapeutics, Inc. (OREX).
However, unlike some of the other junior gold miners out there that are bleeding cash and stuck in a tailspin amid falling gold prices, Lake Shore Gold has actually done much better than its peers lately. LSG has been operating at breakeven or better for six of the past seven quarters and actually has seen shares jump 70% year-to-date despite the thumping other gold miners have taken.
The challenge, of course, is fighting upstream against a very harsh environment for gold. Not only is demand down, but a strong U.S. dollar ensures that commodities from oil to gold to corn face a pretty low ceiling in 2015. But LSG is at least profitable even at current pricing, and its relatively small-scale operation of three gold complexes means the company is not at risk of massive capital costs like other miners that have stretched themselves too thin in the last several years.
The icing on the cake is that revenue continues to move significantly higher for LSG even as gold prices remain challenged. Sure, that’s mostly because of increased production instead of rising prices, but if the company is moving forward amid falling commodity prices, just imagine how it may do in 2015 is gold prices move even incrementally higher.
Cheap stocks that are junior miners are notoriously volatile, and highly dependent on both commodity prices and investor sentiment to get ahead. As such, you’re really taking the tiger by the tail in LSG stock.
However, if you’re a bull on gold prices and you want an aggressive play for less than $1 a share, Lake Shore Gold could be among the best cheap stocks to buy now.
As a so-called “depletion trust,” HGT stock essentially is a supply of natural gas that is under the control of XTO Energy — the nat gas arm of energy king Exxon Mobil (XOM). As that natural gas is extracted and sold, you as a member of the trust get a portion of the profits.
There is no growth here, just a regular stream of monthly dividends as the energy is sold off slowly. But what makes HGT so attractive is that it has paid $1.08 cents in dividends over the last 12 months — good for a yield of 11% at current pricing! Even if you don’t want to take the full calendar year and simply annualize the lowest monthly payment of 5 cents, that still equals 60 cents in full — good for a yield of more than 6%.
You simply can’t find that income potential in other cheap stocks out there.
And when you throw in the fact that this stock has gained 30% in share price alone since Jan. 1, it’s hard to argue with the profit potential here.
Sure, natural gas pricing is soft. And sure, once the trust runs out of resources, you’re going to be left with nothing. However, the supply of the trust is still substantial, and a double-digit return via dividends alone should be a good sweetener even if nat gas prices never move up enough to provide blockbuster returns.
Act fast if you want HGT stock, however, because Hugoton is just shy of $10 and might not stay in single digits for long. Make this monthly dividend payer a priority among your favorite cheap stocks to buy now.
Plug Power saw strong Q2 earnings with nice revenue growth, and the fuel cell company also enjoyed a cash infusion thanks to a $35 million investment from NRG Energy (NRG). Furthermore, the company managed to post an adjusted quarterly profit — proving that the startup is on the way to operating in the black and delivering real profits to shareholders.
Q3 numbers will hit Wednesday, Nov. 12, but Plug Power is trending higher in anticipation of the report with a nice 15% gain in the last two weeks alone.
There admittedly is a bunch of risk here, with a speculative fuel cell company like Plug Power riding mostly a wave of investor sentiment on not much fundamental improvement. While margins have gotten better, revenue has remained challenged over the past few years, and PLUG needs to keep up its sales growth to get ahead.
But if you believe in fuel cell technology and sentiment stays strong, Plug Power Inc could be one of the best cheap stocks to buy now for gains in 2015 and beyond.
Unlike the big guys in the spirits business like Diageo plc (DEO), Castle Brands Inc. is not yet profitable. And with a market cap of just $300 million, it certainly is a long way from the same scale as its major competitors.
However, the spirits industry is growing strong both at home and abroad, and Castle is riding that tailwind to big success. Revenue for fiscal 2013 (which ended March 31) hit $48.1 million, up 17% from $41.2 million the previous year and up 60% from just $30 million in fiscal 2012. The company is plotting revenue of $54.4 million in the current fiscal year for another 13% growth on top of that.
In addition to the overall growth for spirits sales, there’s also an element of stability because “sin stocks” like alcoholic beverage companies can rely on strong sales even if the economy takes a turn for the worse. Though big-time discretionary spending could crumble if consumers take a hit, spending a few bucks at the bar is never a problem in hard times — and if anything, becomes even more of a necessity for hard-luck Americans.
ROX certainly is small-time, with its relatively small market cap of $300 million, but does trade hundreds of thousands of shares daily, so there is enough liquidity in this roughly $2stock to buy with confidence.
As with spirits companies, casino operators tend to be relatively recession-proof — and that’s especially true given the location of Monticello, just outside of a major metro area and one of the few gaming options for patrons living in Pennsylvania or Upstate New York. That means a strong baseline business for this cheap stock.
The challenge, of course, is that casinos aren’t necessarily a sure-thing. That’s evidenced by increased competition across the U.S. as many states ease gaming restrictions, as well as a number of high-profile casino closings in Atlantic City recently.
NYNY stock is admittedly risky, as it’s not profitable right now. However, if you believe in the rise of gaming across the East Coast, this might not be a bad play for continued growth over the next few years. With non-tribal casinos now legal in Maryland, Delaware, Ohio, Pennsylvania and West Virginia, Empire Reports may have the experience and ambition to tap into the growing market for casinos across the Northeast.
It’s nicely in between a risky small-cap and a sleepy blue chip, with a mid-cap market valued of nearly $5 billion. It also offers a small dividend at a yield of about 0.8% based on its last payout of 4 cents, though it’s worth noting the distributions are irregular and can swing wildly in size.
Broadly speaking, an electronics player like AUO stock is a stable play for the long-term considering the need for LCD displays in a host of uses for both consumers and businesses. While there may never be breakout potential for a company like AU Optronics Corp, this cheap stock to buy now does offer a strong baseline demand and a profitable business that doesn’t seem to be going anywhere.
Proximity to electronics manufacturers in Asia means that AUO is well-positioned to find new business and keep humming along in 2015.
If that’s a risk you’re willing to take, then OREX should be on your list of the best cheap stocks to buy.
Orexigen is a typical development-phase biotech that’s losing money as it researches its cures, banking on both FDA approval and success in the doctor’s office that will generate great sales down the road. Those sales will cause a big windfall in profits when they come — if they come — and may even spark acquisition interest from Big Pharma.
Orexigen is particularly interesting because of a group of obesity medications it is currently pushing through trials, and its recently approved Contrave drug. This is a big potential market given the epidemic of obesity in America and increasingly in the rest of the world. Also the FDA has endured some criticism as of late for dragging its feet on obesity drug trials and approval in recent years despite the importance of helping the millions of patients.
Back in September, OREX was selected as a top biotech pick by Credit Suisse, with an “outperform” rating and price target of $10 per share. That would be about 100% upside if that comes to pass — and long term, the target could be even higher if its line of obesity medication gets widespread acceptance.
Just be careful — biotechs are always volatile, and OREX is no exception. The good news is that this cheap stock is very liquid, with average volume well into the millions of shares traded daily, but that doesn’t mean you won’t face big swings both ways in share price.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.