The best cheap stocks to buy now can be difficult to identify. That big-name stock that has fallen from grace could be a bargain, but it also could be stuck in a big downtrend. Similarly, that small up-and-comer that has shown strength lately may just be faking out Wall Street and set for just as big of a move back to the downside.
So how can investors have confidence that the cheap stocks they are looking at have staying power?
There is no magic formula and no guarantees, but a few crucial things to look for in the best cheap stocks to buy include:
- Profitable operations, showing a company with staying power
- A sustainable dividend, to guarantee some kind of return on your investment
- A unique opportunity for upside, such as acquisition potential
- A reasonable explanation for past troubles, and a significant change from the old model to a new one
Using those criteria — as well as a demand that all stocks trade at least 500,000 shares daily on average and boast a market cap of more than $300 million — investors can have confidence that they aren’t just putting a coin in a slot machine and crossing their fingers.
Here are 10 such investments that meet the measure of what I think make up a list of the best cheap stocks to buy now.
Best Cheap Stocks to Buy: Regions Financial Corp (RF)
Industry: Regional Banks
Market Cap: $12 billion
Regions Financial (RF) is one of the best cheap stocks to buy now because it boasts a lot of characteristics of any strong investment. It has substantial size, as a mid-cap bank with a $5.5 billion or so in annual revenue and consistent profitability.
RF stock also boasts a modest dividend yield of 2.6%, with its 6-cent quarterly payments very sustainable at less than a third of earnings. The fact that the dividend was bumped a penny higher earlier this year is also a good sign.
The challenge is that Regions isn’t really growing — at least not on its top line. Revenue is projected to increase about 5% this year and just 3% in fiscal 2016. Thus, investors aren’t interested.
But here’s the thing: RF execs are painfully aware of perceptions and have been taking measures to improve profitability even if growth is hard to come by, including a recent hiring freeze and the elimination of 40 full-service bank locations over the past year.
Regions also has taken consistent steps to reduce risk, with just a 10.4% leverage ratio and an 11.7% Tier 1 Capital ratio. That makes Regions much less risky than in previous years, even compared with some of the bigger banks out there. Consider that Bank of America (BAC) and Citigroup (C) both have ratios under 10% for their Tier 1 Capital — that is, the most liquid and secure assets that can be used to quickly backstop problem loans.
To top it off, regional banks remain ripe for consolidation, and Regions is at the top of the list. There may not be a lot of growth, but that’s true sector-wide — and all the more reason for big banks looking to expand via acquisition to roll up this player.
With a price-to-book of just 0.76 right now — meaning a roughly 24% discount — RF is worth a look.
Best Cheap Stocks to Buy: Yamana Gold Inc. (USA) (AUY)
Market Cap: $2.3 billion
Industry: Metals & Mining
Yamana Gold (AUY), like many miners, has been eviscerated by the commodity downturn. However, the dramatic fall from grace of this gold miner has been much harsher than the actual declines in gold bullion prices, which could hint that AUY stock is oversold and one of the best cheap stocks to buy now.
The company is hovering on the edge of profitability, with hopes that cutbacks will boost margins in 2016 a bit. The company pays a modest 2.6% dividend to boot, and at just 1.5 cents quarterly it should be able to sustain that payout even on slim EPS.
Gold prices may flat-line, but given the negativity baked into Yamana Gold, it’s unlikely this cheap stock will slide much more in 2016. I know that’s a dangerous sentiment to voice around gold, but remember that miners have fallen much more sharply than gold itself — the benchmark SPDR Gold Shares (GLD) that is tied to gold futures is off 33% in three years, while the Market Vectors Gold Miners ETF (GDX) is off 68% and the Market Vectors Junior Gold Miners ETF (GDXJ) is off 76%.
Clearly much of the pain is baked in, and a breakeven stock with a dividend like Yamana is worth an aggressive buy here. Look at the 50% surge in AUY stock over the past month as proof that some investors think the worst is over, and that sentiment is shifting.
Best Cheap Stocks to Buy: Sirius XM Holdings Inc. (SIRI)
Market Cap: $20.7 billion
Satellite radio provider Sirius XM (SIRI) always seems to make these lists of the best cheap stocks to buy, since it has been trading in the single-digits for many years.
But rest assured it’s not on this list just as filler.
This summer, SIRI put up strong earnings that show it’s a pretty good bet regardless of what the nominal share price is — including a record level of subscribers. The company followed that up with impressive Q3 numbers in October, fueled by more than $550 million in buybacks to lift earnings.
As a result, Merrill Lynch put out a note maintaining a “buy” rating on SIRI stock and upping its price target to $5.
SIRI stock is up by double digits in 2015 thanks to this uptrend. And that should stick, since the company’s “churn rate” was the best in history over the summer and the most recent earnings quarter included a small uptrend in forward guidance.
As one of the highest-profile cheap stocks on Wall Street, expect sentiment to oscillate and volatility to reign for Sirius XM regardless of the headlines or the market environment. But over time, SIRI stock should certainly be trending higher based on the recent history of strong earnings reports.
Best Cheap Stocks to Buy: Fortress Investment Group LLC (FIG)
Market Cap: $2.6 billion
Industry: Investment Management
Fortress Investment Group (FIG) is one of the best cheap stocks to buy now because of a an important mixture of powerful history and a unique opportunity in the here and now.
The investment bank clearly has fallen on hard times, given its 25% decline in 2015, and many blame the company’s big-time macro fund for the misery. The fund was down by more than 17% through September, not just taking a bite out of assets but also burning client relationships crucial to the growth of FIG.
But Fortress didn’t offer up excuses – it just closed the fund, and conspicuously the fund’s CEO and company’s president, Michael Novogratz, also announced he will be retiring at the end of the year after more than a decade at Fortress.
Now, Fortress has plenty of other irons in the fire than just asset management, including a nearly $700 million private equity arm. And it remains a respected name in the eyes of many investors despite the recent trouble for its macro fund.
One reaction would be to abandon Fortress and not look back. But given the recent management shakeup — and the impressive 5.4% dividend yield — I wouldn’t be eager to throw in the towel just yet. Shares have risen by more than 40% from a recent 52-week low in part because of the moves, and Fortress Investment Group certainly is not going away anytime soon.
Rather, I’d see the shakeup as a buying opportunity for long-term investors who are willing to wait out some short-term troubles in hopes of Fortress getting its mojo back … and delivering juicy dividend payments along the way.
Best Cheap Stocks to Buy: Kandi Technologies Group Inc (KNDI)
Market Cap: $410 million
Industry: Electric Vehicles
Kandi Technologies (KNDI) may be recognizable to some investors who were chasing high-growth Chinese stocks over the last few years … particularly if you had the misfortune of buying KNDI stock, an electric vehicle and battery manufacturer, at its peak around $20, more than twice where it currently trades.
But while the pain of China small caps is well-known in 2015, investors shouldn’t consider a blanket ban on these investments. Volatility is the name of the game here, and that can actually be very beneficial to investors if they manage to get on the right side of the trend. It’s high-risk, yes, but also very high-reward.
Just look at the 50%-plus surge in the last 30 days as proof of that.
Long-term, investors should consider a promising contract that was announced earlier this year to provide 4,000 electric vehicles to a key China partner. Also consider that KNDI stock is running at a profit, and has for the past five quarters, so this is not a company that will evaporate anytime soon.
Admittedly, Kandi stock took a beating after Q2 results, but that was even as it posted 45.5% year-over-year revenue growth.
Big-picture, China has to move away from the high-pollution transportation network it currently has in place, and KNDI is part of that future. It continues to forge key partnerships with firms, and its joint venture with Geely Automotibile Holdings (GELYF) ensures it will stay at the forefront regardless of continued competition.
Yes, it’s a high-risk play. But given recent strength in KNDI, investors may want to take a flier here on this China small cap.
Best Cheap Stocks to Buy: Navios Maritime Holdings Inc. (NM)
Market Cap: $290 million
Navios Maritime Holdings (NM) is a dry bulk shipping company, focused on commodities including coal and grains. Thanks to the downturn in demand from China, there has also been a downturn in the fates of NM stock, which has slipped about 40% so far this year. However, Navios could be a good long-term value play after the recent declines.
For one sign of optimism, consider that despite calling 2015 “historically bad” for the sector, a JPMorgan analyst nevertheless initiated coverage on NM stock with an “overweight” rating thanks to sentiment that can’t get much worse despite the serious challenges to shippers. This, after Canaccord Geniuity initiated coverage on NM stock this summer, also with a “buy” rating and a 12-month target of $14.
Navios Maritime stands out as one of the best cheap stocks to buy now in this space in part because of this optimism among analysts that there is value hidden here, driven in part by a growing logistics business and a planned spinoff of some of those assets in South America.
Best Cheap Stocks to Buy: Amarin Corporation plc (ADR) (AMRN)
Market Cap: $340 million
Amarin (AMRN) is one of those high-flying development-stage biotechnology stocks that delivers either a big boom or a big bust to investors.
There’s reason to hope that AMRN stock will be part of the latter group.
The reason I think Amarin is one of the best cheap stocks to buy now is that the small-cap biopharmaceutical company has already seen impressive performance in a down market, roughly doubling in 2015. That shows strong sentiment behind this name despite its low share price.
Also, its focus on cardiovascular treatments puts it in a very lucrative segment of the drug market. Orphan drugs and niche products can be big hits, but especially given the attention from Hilary Clinton on companies “price gouging” on certain treatments, the massive pool of cardiovascular drugs means plenty of competition and thus no accusations of manipulation.
But at the same time, what’s really interesting about Amarin is that the company has been aggressively promoting some drugs for other uses — so called “off-label” marketing. The company has recently argued — successfully, too — that such marketing is a free-speech issue and cannot be stopped by the FDA. That allows AMRN to push its drugs not just for the biggest pool of heart disease patients, but also smaller and more specialized uses at the same time.
AMRN has admittedly been stuck in a rut for a few months as investors digest things. But keep in mind that H.C. Wainwright put a whopping $10 price target on the stock in spring! Considering Amarin is still trading around $2 right now, that would be an amazing move higher.
Just keep in mind the risky nature of biotech stocks like Amarin. Sure, AMRN could sprint ahead and develop the next cardiovascular blockbuster in the coming years. But it could also see troublesome studies and failure, adding up to big setbacks for a small-cap drug company that is not yet profitable.
Best Cheap Stocks to Buy: Advanced Semiconductor Engineering (ADR) (ASX)
Market Cap: $9.0 billion
Advanced Semiconductor Engineering (ASX) is an integrated circuits and electronics company based in Taiwan. While not a supplier for the iPhone from Apple Inc. (AAPL) or a partner of some other tech giant with big reach, ASX is nevertheless a crucial player in tech since it is a leader in testing and packaging chips for many uses.
And best of all, since ASX is not a chip designer, it doesn’t have the risk of R&D budgets and innovation demands. Sure, it won’t get big margins from designing the next big thing, but the stability could be seen as a big plus by tech investors given the volatility lately.
That stability also is reflected in the form of a 5.2% dividend yield. Sadly, that payout is annual and investors will have a long time to wait to get paid … but the size is noteworthy, and sustainable at about 70% of FY2016 earnings.
In a post-PC age, there are assuredly sexier tech plays out there. But ASX has hung tough year-to-date in the last year, barely below breakeven in 2015, and remains an attractive acquisition target given all the consolidation we’ve seen in the chip space this year.
Throw in improving earnings and there are many reasons to bargain hunt in Advanced Semiconductor instead of overpaying elsewhere in the technology sector. With a forward P/E of about 12 and an attractive dividend, investors can have faith in this tech player.
Best Cheap Stocks to Buy: Boulder Brands Inc (BDBD)
Market Cap: $550 million
Industry: Food retail
Boulder Brands (BDBD) is a cheap stock to buy now if you want to play the recent consumer trend of shopping for healthy, natural foods.
Boulder’s brands include butter substitute Smart Balance and Earth Balance, which use plant-based oils to avoid meats and dairy, as well as Evol frozen foods that cater to busy but health-conscious customers. Also important is its emerging Glutino Food Group, serving the increasing group of consumers that is concerned about gluten-free eating.
The small-cap stock is down more than 20% year-to-date and is off roughly 50% from a mid-2014 peak. However, a lot of the run-up last year came from investors piling into the stock for its fad potential … and after BDBD became overbought, they abandoned ship and moved on to the next fashionable trade.
Oh yeah, and it hasn’t helped either that Q2 earnings showed the first year-over-year drop in revenue for many years and the CEO resigned in disgrace.
But the leadership change could ultimately be a good thing for the company, as evidenced by a more than 30% run for BDBD stock since its July lows.
After all, this is not a recent IPO, but a stock that has been trading for roughly a decade and proving itself with vetted financial reports. Boulder has shown that it is a going concern.
Capitalize on the tailwind of healthier eating with this cheap stock to buy now after the selloff.
Best Cheap Stocks to Buy: Genworth Financial Inc (GNW)
Market Cap: $2.5 billion
Genworth Financial (GNW) is a financial stock focused mainly on mortgage insurance and life insurance., and has been through the ringer in 2015. After a decline of about 60% so far in 2015, the financial services company saw its CFO resign recently — and who can blame him, after Genworth owned up to previous issues with financial reporting earlier this year.
But keep in mind that even after disclosing accounting issues, Genworth is expected to earn $1.05 per share next year, giving the stock a forward P/E of less than 5 right now. GNW trades for a book value of 0.18 — a more than 80% discount!
Now, I know that accounting errors are like cockroaches … once you spot one or two nasty critters, there are sure to be dozens more under the floorboards. However, GNW is priced for disaster and the company continues to plod along. Aggressive investors may want to consider this a nice buying opportunity despite the headlines.
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.