Hunting around for the best cheap stocks to buy now is no easy task. While looking for the right investment, you’ll end up running across some really cruddy companies — after all, one finds diamonds in the rough, not rough in the diamonds.
That said, it’s simply not fair — or prudent — to write off all cheap stocks as losers just because they trade for less than $10 a pop. Sure, the pool of stocks below $10 has a disproportionate number of has-beens, would-haves and never-wills, but it’s also a darn good place to find killer deals.
Of course, knowing the risks posed by seeking out the best cheap stocks to buy now is half the battle. The stock market today is as risky as ever, but it gets a whole lot more perilous when investors buy into cheap stocks merely because they’re cheap, not because the underlying companies show promise.
You won’t find those stocks on this list.
Thankfully, there are some diamonds in the rough out there, shining brilliantly despite the apparent apathy of the larger stock market. So, without further ado, here they are: The seven best cheap stocks to buy now, in my opinion.
Best Cheap Stocks to Buy Now: Rite Aid (RAD)
Market Cap: $8.6 billion
1-Year Performance: +3.7%
In the rapidly consolidating drug store industry, Rite Aid (RAD) is a best-in-class stock. Trading at just 0.32 times sales, RAD comes in as one of the most compelling cheap stocks to buy now in the entire market.
Although it plays second-fiddle to industry leaders CVS (CVS) and Walgreen (WBA), Rite Aid can certainly hold its own, with same-store sales increases driving growth. In May, same-store sales rose 2.2%, continuing an encouraging trend we saw in the fiscal fourth quarter.
InvestorPlace‘s Dan Burrows fawned over last quarter’s upbeat results, saying:
“The manner in which RAD eclipsed estimates shows Rite Aid stock remains a legitimate way to play rising spending on healthcare, as the healthy same-store sales beat was driven by prescription drug sales that surprised to the upside. Pharmacy same-store sales gain 5.7%, while front-end sales increased a modest 2%.”
With the “greying of America” upon us as Baby Boomers approach retirement age, I don’t expect pharmaceutical prescriptions to be dropping anytime soon. Considering 68% of revenues are derived from its pharmacy, RAD is one of the cheapest quality stocks to buy today.
Best Cheap Stocks to Buy Now: Sirius XM (SIRI)
Market Cap: $21 billion
1-Year Performance: +19%
Shares of satellite radio leader Sirius XM (SIRI) may cost less than $10, but boy, does it pack in some value. Net income jumped 32% last year, and Wall Street expects earnings per share growth of 37.5% in fiscal 2015 followed by a 36% increase in 2016.
Although some worry about growing competition in the industry, SIRI hasn’t had any trouble fending off the likes of Pandora (P), which was once erroneously considered to be a legitimate competitor.
The great thing about Sirius is that it’s not just a satellite radio play anymore. The company is getting heavily involved in telematics — the transmission of computerized data over long distances.
What does this mean exactly? Investors should know that SIRI is becoming a leader in the connected car market. The company recently partnered with Subaru, powering a services like automatic collision notification, emergency assistance, maintenance notifications, and more.
With an average of 24 million shares traded each day, SIRI has plenty of liquidity, too — just another point in the “pros” column that makes Sirius XM one of the best cheap stocks to buy today.
Best Cheap Stocks to Buy Now: Standard Pacific (SPF)
Standard Pacific (SPF), a California-based homebuilder, specializes in the construction of single-family homes. With operations on the West Coast, southwest, and southeast U.S., SPF enjoys broad geographic diversification, ensuring a downturn in a single market won’t make or break the company.
On top of plain old home building, SPF also has a financial arm, offering mortgage financing and title services. In short, it’s basically all-in on real estate. Through April, median home prices were up 8.9% year-over-year — the 38th consecutive month of year-over-year gains — signaling that the real estate recovery is a very real thing.
Still trading at beaten-down levels after the financial crisis cast a black mark on its industry, SPF hasn’t always been one of the best cheap stocks to buy. In fact, back in 2005, shares changed hands for nearly $50 a pop. Today, you can pick up SPF for less than $10.
The builder clawed its way back to profitability in 2012 and hasn’t looked back since. Trading at a forward price-to-earnings ratio of less than 11, analysts expect EPS to rise 14% in fiscal 2015 and jump 22% in 2016.
I’m skeptical SPF will remain a cheap stock that long.
Best Cheap Stocks to Buy Now: Ariad Pharmaceuticals (ARIA)
Market Cap: $1.7 billion
1-Year Performance: +37%
Do you like cheap growth stocks? Do you have a stomach for risk? If you answered yes to both those questions, Ariad Pharmaceuticals (ARIA) stock is right up your alley. The biopharmaceuticals company specializes in oncology, and its flagship leukemia drug Iclusig is approved in both the U.S. and the European Union.
While Iclusig drove the company to breakneck 131% sales growth last year, Ariad has another drug in its pipeline that may prove to be the next chapter in the company’s history — and the next driver for ARIA stock.
That drug is called brigatinib, and it aims to treat ALK-positive non-small cell lung cancer. Depending on what the Food and Drug Administration (FDA) decides, brigatinib has a decent shot at being fast-tracked to market as a breakthrough therapy.
That said, the primary catalyst for ARIA stock over the last several months has little to do with Ariad’s drug pipeline. No, the company is actually a very legitimate buyout candidate, especially after former CEO Harvey Berger was forced out by Sarissa Capital, an activist investment firm.
There aren’t many cheap stocks to buy now with that sort of firepower behind them. When you consider the fact that Sarissa Capital was one of the single largest shareholders in Idenix Pharmaceuticals (former ticker: IDIX) before its acquisition for a 240% premium last year, you can understand why ARIA probably won’t trade below $10 for much longer.
Best Cheap Stocks to Buy Now: MannKind (MNKD)
Market Cap: $2.4 billion
1-Year Performance: -44%
MannKind (MNKD) has been one of my favorite cheap stocks to buy for years now. For the sake of full disclosure, I own both MNKD stock and MNKD call options myself, and have for quite a while. Although the stock tends to be wildly volatile, anyone with a high risk tolerance and long-term time horizon should take a close look at MNKD.
The meteoric potential upside and limited downside is what first caught my eye about MannKind: The company is behind Afrezza, an ultra rapid-acting inhalable insulin approved by the FDA last year to treat both type 1 and type 2 diabetes. I view inhalable insulin as a game-changer because, let’s be honest, no one really likes needles.
Afrezza hit shelves in February, and is being sold and marketed by Sanofi (SNY), one of the largest pharmaceutical companies in the world.
The newest iterations of MannKind’s “Dreamboat” inhalers, used to administer Afrezza, can fit easily in your palm, making drug administration easier than ever. On top of that, MannKind’s proprietary “Technosphere” delivery system
“… has the potential to provide impressive drug delivery solutions across a wide variety of therapeutic areas encompassing a number of diverse products and disease states.”
Translation: Technosphere can potentially be licensed out or used by MannKind itself in the administration of another drug somewhere down the road. That’s precisely what makes MNKD one of the best cheap stocks to buy now — a few years from now it might not be so cheap.
Best Cheap Stocks to Buy Now: LoJack (LOJN)
LoJack (LOJN), which makes products for the tracking and recovery of valuable assets like cars and computers, is by far the smallest company on today’s list.
But helping people find their stolen laptops, while admirable, probably won’t get this stock to the next level. Thankfully, that reality is starting to set in on LoJack, which is expanding into a promising new vertical: telematics.
LoJack now offers a potpourri of subscription-based services: From tracking the utilization of construction equipment to providing fleet management data to inventory management systems for car dealers, LoJack is seriously expanding its horizons.
But what further cements LOJN as one of the best cheap stocks to buy now is an extremely bullish pattern of insider buying. In May, a number of LoJack insiders, from directors all the way up to the CFO and CEO, snapped up LoJack stock at market prices.
Best Cheap Stocks to Buy Now: First Niagra Financial (FNFG)
First Niagra Financial (FNFG) is a regional retail and commercial bank, doing business in the Northeast. A fairly traditional bank, FNFG has 390 branches and boasts $39 billion in assets. What, exactly, is so exciting about a sleepy Buffalo-based bank?
For one, FNFG is the only stock on this list that pays a dividend — and a pretty good one, at that. Its dividend yield is currently 3.5%, well above the yield on 10-year Treasuries, which sits at a miserable 2.4%.
After losing $2.12 per share in 2014, analysts expect FNFG to make a rapid recovery and get back in the black this year, with EPS projected to come in at 56 cents. I think that makes for a compelling play. But don’t just take my word for it — First Niagra insiders have been accumulating shares over the last year, just as we saw with LoJack.
People with a far better grip of the company’s prospects than myself also seem to agree that FNFG is one of the best cheap stocks to buy.
Yet another bullish indicator for First Niagra is the eternally consolidating world of the banking industry: I wouldn’t be surprised to see the company bought out by a larger competitor in the coming years.
As of this writing, John Divine was long MNKD stock and MNKD Jan 2016 $7 call options. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.