There’s a reason many mutual fund companies offer some sort of variation of a low-priced stock fund, such as Fidelity Low-Priced Stock (FLPSX). While low nominal price doesn’t necessarily mean the stock is a bargain (since that’s what valuation metrics are for), many investors still like gunning after them, if for no other reason than it’s easier to buy large, round lots.
If you are into making large bets, then even a small move on cheap stocks can mean a big, absolute dollar return.
Cheap stocks can have some issues, like the fact that under certain share prices, cheap stocks lose institutional buyers like mutual funds that have certain share-price requirements. So they’re certainly not for the faint of heart.
However, at the end of the day, cheap stocks may have excellent fundamentals and just be overlooked.
Here, we look at 10 cheap stocks to buy now … on the idea that they’re much better than their prices might otherwise indicate.
Cheap Stocks to Buy: Tesco Corporation (USA) (TESO)
TESO Share Price: ~$8.65
Tesco Corporation (TESO) may be the only energy play I could consider at this price in this environment.
While just about every energy company that isn’t a mega-cap is getting destroyed, TESO is holding its own. That’s primarily because it has no long-term debt. It trades at $8.26 with $1.20 cash per share in the bank. It’s also up nearly 20% this year, versus a much more modest 3% for the Energy SPDR (XLE).
Tesco provides design, assembly and delivery for upstream energy players, which they’re going to need no matter what. Thus, TESO has a strong chance of surviving the oil crash, and thriving thereafter.
Cheap Stocks to Buy: West Marine, Inc. (WMAR)
WMAR Share Price: ~$9.30
West Marine (WMAR) is a specialty retailer of boating supplies –everything from core products needed for maintenance, hardware, engines, safety and the like, to apparel and footwear.
While WMAR services a broad array of customers, it has been struggling lately. It does make money, but not a lot. It also does have a great footprint of 260 stores across 38 states.
What I like about West Marine is that it has $2 per share in cash and no debt … so if it can grow, it will provide some outstanding returns.
Cheap Stocks to Buy: TravelCenters of America LLC (TA)
TA Share Price: ~$6.80
TravelCenters of America (TA), as potential stocks to buy go, has some risk attached to it.
TA operates what I used to call “highway pit stops” along the interstate highway system. There are travel centers, convenience stores, restaurants, repair facilities, etc. at these centers. TA owns about 250 of these locations, plus 204 Mini-Marts.
TravelCenters is profitable, but it needs a boost from a stronger economy and gas prices staying low. TA traded as high as $18 in the past year, and if U.S. consumers cooperate, it could revisit that.
Cheap Stocks to Buy: Gain Capital Holdings Inc (GCAP)
GCAP Share Price: ~$6.30
Gain Capital Holdings (GCAP) provides trading services for retail and institutional investors in over-the-counter markets for things like forex, precious metals trading, commodities, stocks and bonds. It also handles futures trading, and runs off the GTX platform which some of you sophisticated traders may know about.
OK, so Gain Capital isn’t exactly Fidelity Investments, but it has about 175,000 accounts, makes a tidy profit every year, and even pays a 3% dividend.
GCAP currently trades at $6.30, but based on what it has in the tank, it should be closer to $10, where it traded at last summer.
Cheap Stocks to Buy: Park Sterling Corp (PSTB)
PSTB Share Price: ~$6.60
Park Sterling Corp (PSTB) is another of these quiet little bank stocks that just tends to its knitting and generates a modest profit each year, along with modest free cash flow since it has almost no capex.
Yes, PSTB offers all the stuff you’d expect from a small bank, including a modest 57 branches in just four states.
Park Sterling trades at $6.65 and pays a 1.8% yield. I think this is the case of a stock that’s waiting to be discovered before it moves higher.
Patience probably rewards.
Cheap Stocks to Buy: Acacia Research Corp (ACTG)
ACTG Share Price: ~$4
Acacia Research Corp (ACTG) is probably the strangest company, and riskiest, on the list. It invests in, develops, licenses, and enforces patents. It has about 1,500 license agreements and 185 licensing and enforcement programs.
The thing is, though, it loses a lot of money every year. However, it just spurned a $3.72 buyout offer (it trades around $4), which suggests that this may be a floor for the stock.
It also has about $3 per share in cash, which is yet another floor.
Cheap Stocks to Buy: Ashford Hospitality Trust, Inc. (AHT)
AHT Share Price: ~$6.10
It’s not often I can discuss a stock I’ve held since its initial public offering in 2003 as being one of these stocks to buy.
Ashford Hospitality Trust (AHT) is a hotel real estate investment trust that has one of the most experienced management teams in the hospitality sector. The market has always mis-valued AHT, and with the price at $5.74 and assets worth at least twice that price, there’s 100% upside from here.
Plus, Ashford pays out a sustainable dividend of nearly 8%.
AHT is the largest of my portfolio holdings, and for good reason.
Cheap Stocks to Buy: Enova International Inc (ENVA)
TESO Share Price: ~$6.20
Enova International (ENVA) is my second-largest holding. This online lender is transitioning from regulatory-heavy payday loans to new products such as installment, near-prime, and small business lending.
Enova’s underwriting and analytics are second-to-none, and I know this having spent more than 10 years in the alternative lending business.
The market is spooked by the transition and has sold off this stock, which I believe is worth more than $18, down to a mere $6-plus.
Cheap Stocks to Buy: EZCorp Inc (EZPW)
EZPW Share Price: ~$3
EZCorp (EZPW) is another one of these cheap stocks, but it can’t get much cheaper.
EZPW went through several management changes and shot itself in the foot. It has righted the ship, though, and is doing what it does best — putting its focus on its domestic and Mexican pawnshops.
There’s always a demand for pawn, which is why pawnbrokers have existed for hundreds or years. Pawn also provides great returns. Loans are made at 5%-10% per week, and forfeited collateral sells at 40% margins.
EZCorp trades at a measly sub-$3, yet its pawn operations are worth $6, at a minimum.
Cheap Stocks to Buy: Stein Mart, Inc. (SMRT)
SMRT Share Price: ~$7.40
Stein Mart (SMRT) is not something I would normally look at, but it is cheap enough on a relative basis to consider.
SMRT is a woman’s fashion retailer with 238 stores. I normally stay away from clothing retail because consumers are so darn fickle. However, Stein Mart drew down debt for the first time that I can recall, and it looks like it is moving into an expansion plan.
Stein Mart does deliver consistent earnings, and the stock is coming off a multiyear low. It’s risky, but worth a look.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he was long AHT, ENVA and EZPW.