The best cheap stocks to buy now come in all shapes and sizes. Some of them are sleepy value stocks that have been overlooked, some are fast-growing small-caps and others are battered picks that investors have unfairly oversold.
But whatever their sector or history, the best cheap stocks to buy now share one simple characteristic: All trade for under $10 a share, meaning you can buy a few hundred shares without breaking the bank.
I personally don’t put much stock in nominal share price, so I think the best cheap stocks to buy now should first and foremost be strong companies. After all, a low share price is sometimes the result of obvious flaws in a business; conversely, plenty of high-priced stocks like Priceline (PCLN) and Chipotle (CMG) have had no problem putting up impressive runs higher despite a theoretically “expensive” share price.
When it comes to the best cheap stocks to buy now, I think price is far less important than the balance sheet and earnings multiples.
But if you’re one of the many investors who care deeply about cheap stocks with a share price under $10 so you can buy a large lot of shares, consider these picks because of their strength and outlook — not just the ticker print.
Cheap Stocks to Buy Now: First Bancorp (FBP)
Price Per Share: $4.54
YTD Performance: -23%
First Bancorp (FBP) is a small regional bank serving Puerto Rico. And as you can expect, fears that Puerto Rico’s debt levels are unsustainable and that the U.S. territory will default have caused many to worry that this island nation is simply another version of Greece that is much closer to home.
But there are many reasons why Puerto Rico is different, not the least of which being its close ties to America. The island commonwealth is formally a territory of America, its currency is the dollar, and the government of Puerto Rico is effectively up to Congress even if there are local officials elected on the island itself.
While the U.S. could theoretically just wash its hands of the island nation, the move would be messy — and given how the Greece debacle has created strife and uncertainty regarding the eurozone, American officials certainly don’t want that kind of mess.
Bankruptcies and defaults of governments, while rare, are not unprecedented. And life goes on both for the residents and the businesses, even if there is some turmoil.
When you look at the precipitous drop in FBP, then, it’s safe to say the market has priced in the worst. And while FBP has some exposure to Puerto Rico’s government debt, the majority of its business comes from business and consumer lending — not speculation on government bonds. Consider that total interest-earning liabilities for the bank totaled more than $10.3 billion at the end of 2014, with about $350 million in “government obligations.” Even if the entirety of that is in Puerto Rican debt and the bank gets zero for it, that’s not the end of the world.
Yes, there will be turmoil if debt fears aren’t resolved. But Puerto Rico’s economy has been struggling for some time so it’s not like there has been a glut of lending that will dry up. FBP has had to do more with less for some time, and I think fears are overblown and provide a huge buying opportunity in FBP as one of the best cheap stocks to buy now.
In fact, I’m so bullish that I must disclose I am a shareholder myself as of this writing, with a personal stake of about 200 shares.
Cheap Stocks to Buy Now: Amarin (AMRN)
Price Per Share: $2.29
YTD Performance: +133%
Amarin (AMRN) is one of those high-flying development-stage biotechnology stocks that delivers either a big boom or a big bust to investors.
Thankfully for those who have been betting on AMRN, it appears that this stock is a boomer.
The small-cap biopharmaceutical company is focused on cardiovascular treatments, and gapped up late last year on strong fourth-quarter earnings results, then saw sustained momentum in the spring after a spate of high-profile upgrades. Specifically, in February, SunTrust Robinson Humphrey upgraded the stock to “buy,” then H.C. Wainwright followed in March with its own “buy” recommendation — and a whopping $10 price target! Considering Amarin is still trading around $2.30 right now, that would be an amazing move higher.
Considering a narrowed loss in Q4 earnings and strong performance for its high-triglyceride-reducing drug Vascepa, things are looking up for Amarin. Maybe $10 is a bit optimistic, but even a few dollars more per share will mean big profits for savvy investors who buy at these low prices.
Just keep in mind the risky nature of biotech stocks like Amarin. Sure, AMRN could sprint ahead on the strength of its drug pipeline or a buyout premium down the road, but AMRN is one bad FDA trial away from a world of hurt.
If you are OK with this risk-reward makeup that’s common in biotech stocks, Amarin is worth a look as one of the best cheap stocks to buy now.
Cheap Stocks to Buy Now: Standard Pacific (SPF)
Price Per Share: $8.87
YTD Performance: +22%
When you think of homebuilders, big-name stocks like Toll Brothers Inc (TOL) and PulteGroup (PHM) spring to mind first. But mid-cap Standard Pacific (SPF) is also a good bet for those who are bullish on housing in 2015 and beyond.
Focused on single-family homes, Standard Pacific is a smaller builder that focuses its work mainly in the Southeast, California and the Southwest to cover about 25 different markets.
While it may sound risky to bet on a housing recovery continuing from here given the crash and burn for home values caused by the financial crisis, there are many reasons to believe housing will keep going strong in 2015 and beyond. In addition to improvement in wages and employment, home values still have a tailwind even if the pace of property value increases has cooled a bit. Furthermore, many reluctant homebuyers have been lured back into the market as costs to rent exceed the cost to buy in many regions.
Builder confidence is good, and as a result, the all-important measure of new-home starts is also looking good — recently hitting an eight-year high in the rate of permitting. That bodes well for Standard Pacific and other similar stocks.
Since the company is smaller than other builders, Standard Pacific took it on the chin worse than peers during the crisis. But that small scale also has meant the ability to ramp up faster, and SPF stock has snapped back roughly 300% from its 2011 lows!
This is a stock that has improved its operations just in time to capitalize on a continued housing recovery. And after shares took a bit of a breather in 2014, they have started 2015 with a bang — so don’t delay if you want a piece of this housing pie while this stock is still cheap.
SPF is soundly profitable again and trades for less than 12 times forward earnings. So don’t expect this stock to stay in single digits for long. This is one of the best cheap stocks to buy now if you want to capitalize on the continued strength of housing.
Cheap Stocks to Buy Now: Quantum Corp (QTM)
Price Per Share: $1.62
YTD Performance: -8%
Quantum Corp (QTM) is a data solutions company that provides digital storage and cloud access to files for consumers and businesses. Particularly interesting are some of Quantum’s solutions for healthcare and life sciences companies, including tabulating clinical data for both doctors and regulators to easily review.
The small company has been drifting lower in 2015, but that’s after a nice run up in fall 2014 and again in April on strong earnings. The company is profitable, and while QTM has cooled off lately, big earnings surprises encouraged investors during both of these stretches.
Being profitable and posting upwards momentum in earnings means that QTM can post an attractive forward P/E ratio of about 11 right now — a nice bargain for a technology stock, considering the premiums paid elsewhere in the sector for other picks.
Throw in a growing top line, and this data solutions company could be a nice cheap stock for those looking to play tech without paying the big-ticket share prices of some of the more popular names.
Cheap Stocks to Buy Now: Cumulus Media (CMLS)
Price Per Share: $1.90
YTD Performance: -55%
Cumulus Media (CMLS) has certainly seen better days, with the stock facing losses losses over the past couple of years, and the company dealing with the rather challenging business of local radio amid plenty of high-tech options for listeners.
However, while performance has been ugly, there are hints that Cumulus has hit a bottom and could be turning around now that it is projecting a return to profitability.
Specifically, CMLS stock will post 14 cents in earnings this fiscal year and 25 cents next year, if Wall Street analysts are to be believed. That gives this roughly $2 stock a forward price-to-earnings ratio of less than 8, meaning most of the negativity has been priced in.
Sure, a company like Cumulus naturally has some long-term challenges. But investors who are looking to play a quick rebound in the stock from $2 to maybe $3 in the next year could be well-served by a strategic buy into this radio giant that operates roughly 460 stations in about 90 major markets.
This sleepy stock remains one of the best cheap stocks to buy now, even if it’s under the radar for many investors.
Cheap Stocks to Buy Now: Merge Healthcare (MRGE)
Price Per Share: $4.59
YTD Performance: +29%
Merge Healthcare (MRGE) is a small but exciting company that develops software to help share medical images. Given the rise of digital medical imaging, the ability for doctors to collaborate on the cloud and the need for secure storage in light of hacking and personal information concerns, a company like Merge is in the right place at the right time.
And judging by the nearly 30% jump since Jan. 1, investors apparently agree.
MRGE has put together a string of strong earnings reports that have met or topped expectations. Meanwhile, revenues are expected to grow at a double-digit clip this year, and profits continue to edge higher as well.
This is risky small cap, to be sure, but one of the best cheap stocks to buy now based on its unique focus and recent momentum. Investor sentiment has rolled over a little bit after Merge’s Q1 earnings announced at the end of April were good but only in line with expectations. That led to a double-digit decline from recent 52-week highs a few months back.
But shares could be ready to rally again given the long-term success of this stock. MRGE has doubled in the last 12 months and could retest its highs again later in 2015 once it gets its feet back under it.
Cheap Stocks to Buy Now: Dot Hill Systems (HILL)
Price Per Share: $5.83
YTD Performance: +32%
One of my favorite tech plays among cheap stocks, Dot Hill Systems (HILL), is a storage-focused tech stock that has really come into its own lately given the focus on big data. In addition to storage array hardware, HILL also provides software for virtualizing, backing up and optimizing data on its servers.
Shares have exploded in 2015 thanks to a strong earnings report in March that showed brisk revenue growth, significant margin expansion and EPS for the fourth quarter that more than tripled year-over-year.
Shares of Dot Hill have recently rolled back thanks to market volatility and uncertainty about Greece and China, but this small-cap tech stock is poised for success no matter what the macro environment looks like.
As a result, now is a great bargain buying opportunity for HILL stock.
As big daata continues to be the big buzzword in tech, you can bet that players like Dot Hill will get even more attention in the months ahead — either in the form of buying pressure from investors, or in the form of buyout bids from larger technology players looking to share in the success.
Cheap Stocks to Buy Now: Kratos (KTOS)
Price Per Share: $5.94
YTD Performance: +18%
Kratos Defense & Security Solutions (KTOS) is a hybrid defense stock and cybersecurity play that easily ranks among the best cheap stocks to buy now.
In the defense arena, Kratos has a high-tech focus, providing flight and guidance software systems to the military for missiles and drones. Regarding cybersecurity, the company offers not just risk management and operational security services, but also training to businesses that want to increase their staff’s readiness and defense capabilities.
On its website, Kratos notes that roughly “6 million unauthorized probes per day” attack the Department of Defense computer networks, and that means tremendous demand for security protocols and the very latest in services and technology. The resulting demand is good news for the entire sector, KTOS stock included.
Government agencies are the bread and butter of Kratos for now, but there remains tremendous upside in all elements of cybersecurity services over the coming years. Whether it be the 2013 data breach of Target Corporation (TGT) or the hacking of Sony Corp (SNE) by North Korea, a series of high-profile and high-stakes cybersecurity issues have brought the importance of digital protection to light.
The risks to consumers and businesses are clear, but so are the potential growth opportunities for savvy investors.
KTOS is smaller than other players, but that means it could be an acquisition target. Furthermore, it is at least profitable on a non-GAAP basis — some hot cybersecurity stocks like FireEye (FEYE) can’t even claim that — and trades for a pretty reasonable forward P/E of 22. That makes this small player a risky but attractive play to ride the trend of high-tech solutions to 21st century threats.
Cheap Stocks to Buy Now: Genesis Healthcare (GEN)
Price Per Share: $6.20
YTD Performance: -27%
Genesis Healthcare (GEN) is a medical center operator that focuses on “post-acute care,” also known as long-term care for older patients or those that need lots of rehab and TLC. The company operates some 500 facilities around the nation, including roughly 100 post-acute care facilities with more than 10,000 licensed beds.
Longtime readers of my columns know that I am a huge believer in the demographic shift (and investing opportunity) creating by aging baby boomers. As this group of Americans get older, they will naturally require more medical attention including the long-term care that GEN provides.
GEN stock is technically down year-to-date after a big pop in April that quickly evaporated, but the long-term performance is much more stable. Shares are up about 3% in the last 12 months — just slightly below the S&P 500’s performance in the same time period — and up about 27% since January 2014 to more than double the market.
Of course, some of that performance isn’t really applicable since the current incarnation of Genesis Healthcare accounts for a massive merger with Skilled Healthcare Group that increased revenue roughly six-fold. And, of course, there is a bit of uncertainty going forward concerning comps and how earnings will truly perform as the combined companies move forward.
However, economies of scale in a growing industry with a big demographic tailwind are never a bad thing. Investors can have confidence in Genesis as one of the best cheap stocks to buy now.
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.