Right now, I think the overall market is expensive, so looking for cheap stocks is a tall task indeed. If you look at projected earnings and the price-to-earnings ratio of the overall market in relation to earnings growth, the broad market is about 20% overpriced.
If you’ve read my articles this past year, you’d see that I’ve been saying that many big-name stocks are priced well out of the range of what’s reasonable.
That’s why value stocks will be the way to go for 2017.
The following seven stocks to buy are among the best cheap stocks I see in the market right now. They not only boast a couple strong valuation metrics, but they also trade for a small nominal amount — most for $10 per share or less.
As a note, I think real estate investment trusts (REITs) are one of the best hunting grounds for quality cheap stocks, so the first few stocks to buy here are all in the real estate category. But I also see opportunity in retail, mining and even one pretty obscure industry with very few players.
Cheap Stocks to Buy: New Senior Investment Group (SNR)
Stock Price: ~$10
New Senior Investment Group Inc (NYSE:SNR) is the first of the REITs, and I like this one not just because of its double-digit yield, but because it focuses on an increasingly important area: independent and assisted-living senior housing facilities.
SNR is one of the largest senior living facility owners on the market, with more than 150 properties across 37 states.
I do not like anything that relies on Medicare for its revenue since government can mess things up. So I’m very pleased that 100% of New Senior Investment Group’s income is generated from privately paying sources.
I always keep an eye on debt with REITs, but this is nicely capitalized with a debt-to-enterprise-value ratio of only 69%. Adjusted funds from operations (AFFO) — one of the most important metrics when it comes to REITs and their ability to pay their dividends — continues to climb. So the 10.3% dividend isn’t just high … it’s healthy.
Cheap Stocks to Buy: Ashford Hospitality Trust (AHT)
Stock Price: ~$7.80
Ashford Hospitality Trust, Inc. (NYSE:AHT) is another REIT in this group of cheap stocks, though AHT isn’t about healthcare — it owns upper-upscale, full-service hotels.
I have never believed that investors have properly valued what this REIT has to offer, especially since management has so much hotel experience. The market did reward the stock a bit this past year, bidding it up by about 25%. Still, shares remain well off the $14 they traded at just a few years ago.
Revenue per available room (RevPAR) and average daily rate (ADR) continue to improve across the board. If you look at private market valuations for hotels, you have to conclude that AHT stock is underpriced. It also has a 6.2% yield.
I think there’s at least 50% upside from here, but it could double if the stars align for leisure, the economy and a solid increase in job growth.
Cheap Stocks to Buy: Independence Realty Trust (IRT)
Stock Price: ~$9
Independence Realty Trust Inc (NYSEMKT:IRT) focuses on the apartment side of real estate, and is mostly active in the Midwest and Southeastern part of the country. It focuses mostly on Class A and B properties with almost 13,000 units.
IRT is somewhat overlevered with 72% debt-to-capitalization and 13 times debt-to-EBITDA — almost twice as high as peers. However, that leverage is not terribly expensive and laddered over many years.
I think Independence Realty Trust is undervalued anyway, but I think 2017 is going to be the year of the apartment bubble. Rents are insanely high, and I think that will drive the prices of all apartment REITs up.
Smaller players like IRT, which sits around just $625 million in market capitalization, could be buyout bait if that comes to pass.
Cheap Stocks to Buy: Investors Real Estate Trust (IRET)
Stock Price: ~$7
Investors Real Estate Trust (NYSE:IRET) operates in the multifamily sector for the most part. Of its 147 investment properties, 100 (consisting of 13,012 units) are multifamily, and the rest are commercial, with a heavy bent toward healthcare.
IRET works in the upper Midwest where unemployment is much lower than in many other areas of the country, which means demand is higher for those seeking homes in multifamily facilities.
The yield on this one sits at around 7.5%, though the latest announced distribution caused a little bit of confusion. While the company paid out a straight 13 cents per share like clockwork in previous years, the upcoming quarter will see a 7-cent regular dividend, as well as a 6-cent special dividend.
Once again, I think we will see a bubble in this sector in 2017, which could cause investors to bid up IRET and other REITs big-time.
Cheap Stocks to Buy: Ascena Retail Group (ASNA)
Stock Price: ~$6.05
Ascena Retail Group Inc (NASDAQ:ASNA) is a tough call as far as a possible double in 2017, but there are some interesting things happening here.
ASNA made a bold move by purchasing Ann Taylor parent Ann Inc. for $2.15 billion in May 2015. But with Ann Taylor comes the other popular brands of Justice, Lane Bryant, maurices, dressbarn and Catherines.
The combined companies had a whopping $7 billion in sales in FY16, but digesting the acquisition and $100 million in debt service is hurting the bottom line. However, if expenses can be lowered, this roughly $6 stock could double as savings move to the bottom line.
Cheap Stocks to Buy: Couer Mining (CDE)
Stock Price: ~$10.50
Couer Mining Inc (NYSE:CDE) — previously Coeur d’Alene Mines — is a gold and silver miner, so obviously its fortunes will be tied to the performance of these precious metals.
The financials for CDE are just fine. While debt ($402 million) is more than cash ($223 million), it’s not wildly overleveraged. Besides, the company is cash-flow positive.
Amazingly, Coeur Mining sunk as low as $1.63 in early 2016 before reversing to current prices around $10. Between that and the fact the Federal Reserve has said it will raise interest rates multiple times this year — and interest-rate hikes are good for the U.S. dollar, which typically moves inversely to precious metals — investors think CDE could have a tough time this year.
But additional rate increases in 2017 are by no means guaranteed. If rate increases don’t materialize and get kicked down the road, gold will respond positively — and given that miners are far more volatile than the metal itself, CDE could easily double in that environment.
Cheap Stocks to Buy: Liquidity Services (LQDT)
Stock Price: ~$10
Liquidity Services, Inc. (NASDAQ:LQDT) is a super-risky play. It’s either going to double … or get cut in half.
If you’ve ever wondered what happens to surplus equipment — especially that of the government — wonder no more. LQDT puts it all up for auction.
This is a business that has been hammered during the Obama administration because 1) expansion of government means less surplus and 2) crappy recovery in the private sector means less surplus. However, the new administration hopes to reverse courses on both of these trends.
So while LQDT has been losing money the past two years, it does have $134 million in cash, or about $4.30 per share on a $10 stock, with no debt. So I think there’s limited downside here and possibly big upside if government starts cutting expenses.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at [email protected].