You don’t need to spend big to pick up premium stock picks … not when you can use the markets’ current volatility to make some savvy investments in cheap stocks.
The seven stocks I outline below each appears seriously undervalued. Don’t just take my word for it — using TipRanks data, I made sure that all these cheap stocks have a ‘Strong Buy’ analyst consensus rating. They also have monster upside potential from their current share price to average analyst price target.
As this is only based on ratings from the last three months, you can get a pretty good idea of each company’s outlook for the rest of 2018.
This is because, at the end of the day, the market is still primed to move higher. Take the recent report from Tony Dwyer, chief market strategist at Canaccord Genuity as an example. Dwyer has just boosted his fiscal 2018 S&P 500 operating earnings forecasts to $160 a share from $155 previously.
“I’m really having a hard time thinking that that’s going to be too high” Dwyer told CNBC. He explained: “There’s only one thing that really drives the market … You only have to figure out which direction that earnings are going.”
So with this bullish analysis in mind, let’s take a closer look at these seven cheap stocks now:
Cheap Stocks to Buy: TherapeuticsMD (TXMD)
TherapeuticsMD, Inc. (NYSE:TXMD) is a unique, innovative healthcare company focused on female healthcare. It is on the cusp of big things with its newly-approved drug Imvexxy. This is a treatment for moderate-to-severe pain due to menopause. However, the current share price doesn’t reflect this.
Oppenheimer’s Jay Olson is very impressed by TXMD’s “compelling launch plan.” He has just reiterated his buy rating with a $12 price target- indicating substantial upside potential of 67%. “The innovative launch plan leverages what we consider Imvexxy’s best-in-class profile based on safety, efficacy and convenience” writes Olson.
According to guidelines, patients should begin treatment at the lowest available dose, meaning that Imvexxy should now become the first-line treatment of choice for most dyspareunia cases. Olson believes that TXMD has the capabilities in place to bring this vision into reality. Plus the high dissatisfaction with current treatments means Imvexxy should experience a speedy uptake.
“We see TXMD as an underappreciated asset, and our Outperform rating is based on the potential for the company to successfully penetrate and expand the market for treatment of menopausal symptoms with two unique, wholly owned products (TX-004HR and TX-001HR) while an existing prenatal supplement business provides a commercial foundation.”
The Street shares this bullish take on TXMD stock. In the last three months, TXMD has received five consecutive buy ratings. Meanwhile, its average analyst price target of $16.40 suggests 128% upside potential from current levels.
Cheap Stocks to Buy: T-Mobile US (TMUS)
T-Mobile US, Inc. (NYSE:TMUS) is the third-largest U.S. wireless carrier. The big question right now is whether its $26.5 billion merger with Sprint will go ahead? Although both parties have approved the deal, it still requires regulatory approval. And given that these companies are two horizontal competitors, this won’t be easy.
Oppenheimer’s Timothy Horan describes the potential merger as “transformational.” He writes: “TMUS/S can together build out the highest capacity/coverage 5G network while achieving significant cost synergies.” Indeed, the combined entity could generate annual synergy savings of about $6 billion.
However the crucial point is that TMUS represents an attractive investing proposition, deal or no deal. And that’s why this stock seems under-priced right now. Even without Sprint, “T-Mobile’s revenue margin expansion, coupled with ongoing subscriber momentum, supports our Outperform rating. TMUS is expanding geographically and is aiming to aggressively deploy its 600 MHz spectrum for increased coverage/capacity” writes Horan. He has a $90 price target on TMUS (56% upside potential).
And we can get a better idea of the figures from Citi analyst Michael Rollins. With a deal he sees upside potential of 51% — but even without a deal he predicts 39% upside potential for TMUS stock. In the last three months, seven analysts have published TMUS buy ratings with just one hold rating. The average analyst price target of $77 suggests 33% upside potential.
Cheap Stocks to Buy: Verastem (VSTM)
“Strong Buy” biotech Verastem, Inc. (NASDAQ:VSTM) wants to improve outcomes for patients with cancer. The company is on a roll : it has just announced positive data for its two lead assets, Duvelisib for chronic lymphatic leukemia and Defactinib; and entered into a lucrative partnering agreement in Japan. This is an exclusive licensing agreement for Duvelisib with Japan’s Yakult. VSTM will receive $10M upfront, $90M on certain milestones, and potentially double-digit royalties on future Duvelisib sales in Japan.
“Duvelisib is differentiated and provides potentially improved quality of care in patients with relapsed or refractory hematologic cancers” cheers B.Riley FBR’s George Zavoico. He has a very bullish price target on the stock of $17 (174% upside potential). The drug sets itself apart from “alternative treatment options based on its efficacy, safety profile and ability to elicit responses in patients intolerant to earlier lines of therapy.”
As for timelines, Verastem plans to launch Duvelisib in US in 4Q18. This is only if FDA approval is granted on or before Oct. 5 PDUFA date. The PDUFA date is the deadline for the FDA to approve or reject the drug. So keep an eye out because an approval (especially before the PDUFA date) could be a major catalyst for the stock.
In total, Verastem has scored six consecutive buy ratings in the last three months. These ratings come with an average price target of $13.33 (155% upside potential).
Cheap Stocks to Buy: Kratos Defense (KTOS)
If you are looking to diversify your portfolio, I recommend considering specialized national security company Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS). This is a great- and cheap- way to get exposure to the booming drone industry. Indeed, the company is experiencing huge growth in its drone segment, known as UAS. In Q1, the UAS delivered stellar growth of 78%- and has won every high-performance tactical UAS opportunity it has pursued.
“Important to the investment thesis is that much of the rapid projected UAS growth comes from programs under contract. There is a high degree of visibility regarding our expectation that the segment can grow in excess of 30% annually through 2019, with growth in excess of this possible as tactical programs pivot to full run rate production in the 2020-2021 timeframe” explains Noble Financial’s Ben Klieve.
He has a $15 price target on the stock. “We believe Kratos is creating meaningful value in excess of current share prices, and believe the rapid growth projected from the UAS segment should justify a higher stock valuation” the analyst states.
ln the last three months four analysts have published buy ratings on the stock. So no hold or sell ratings here. Plus these analysts are predicting (on average) 31% upside potential from current levels.
Cheap Stocks to Buy: American Airlines (AAL)
Top Imperial Capital analyst Michael Derchin sees further room for upside over at American Airlines Group Inc. (NASDAQ:AAL). He has just upgraded AAL from Hold to Buy, and shifted his price target from $49 to $56. This indicates sizeable upside potential of 26%. So why the sentiment shift? Well Derchin is hoping that AAL will announce capacity reductions in the July earnings call. This would be for the post-labor day ‘shoulder period.’
He sees three key reasons why this would be a smart move for AAL. Namely: “1) higher fuel prices pressuring pre-margins, given AAL is 100% unhedged, 2) weaker demand in the off-peak periods with capacity reductions likely to improve AAL’s pricing power, in our view, and 3) management bonuses tied to AAL reaching at least $3bn in pre-tax income, which we now estimate AAL to reach assuming it reduces post-labor day capacity.”
Specifically, Derchin is now estimating that AAL limits capacity growth to 1% in FY19, consistent with FY17 levels. Overall this ‘Strong Buy’ stock has received five recent buy ratings versus just one hold rating. With an average price target of $58.20, analysts are predicting big upside potential of 32%.
Cheap Stocks to Buy: Lam Research (LRCX)
Don’t let headline news distract you from the big investing potential in Lam Research Corporation (NASDAQ:LRCX). This semiconductor equipment manufacturer is set to enjoy “secular trends like the increasing memory content in storage, mobile and eventually autos.” This is according to Cowen & Co analyst Krish Sankar. He sees prices exploding 52% to $285 in the next 12 months.
Sankar calculates that sales for memory tools will increase by 8% (compounded annually) over the next five years. Plus “etch”- one of Lam’s key products- are rising as a percentage of the memory tool market. He explains “etch as a % of WFE [wafer fab equipment] spend has grown from 14% in 2012 to over 20% last year.”
Even the memory market situation is better than you may think. “While the mobile market may be saturated from a unit standpoint, the average DRAM content is growing (possibly up to 8GB), especially as smartphone makers embrace augmented reality applications. Enterprise servers have started to increase the mix of SSD (Solid State Drives) powered by 3D NAND technology. All of this implies increased demand for equipment, especially deposition and etching tools, playing right into LRCX’s sweet spot” writes Sankar.
Taking a step back, we can see that LRCX has received 14 consecutive buy ratings in just three months. These analysts have an average price target on Lam of $275 (49% upside potential).
Cheap Stocks to Buy: IAC/InterActiveCorp (IAC)
Media giant IAC/InterActiveCorp (NASDAQ:IAC) owns over 150 brands including Match Group Inc (NASDAQ:MTCH), Angi Homeservices Inc (NASDAQ:ANGI) and Tinder. And with 100% Street support and sizeable upside potential of over 20%, IAC is a top stock to track right now.
Indeed, a Top 50 analyst – Oppenheimer’s Jason Helfstein-has just boosted his IAC price target from $175 to $200 (26% upside potential). He cites ‘higher estimates for all segments of (MTCH/ANGI/Stub)’ and particularly robust performance at video sharing site Vimeo.
“IAC operates what we consider an undervalued portfolio of Internet assets, focused on the Search, Online Dating, Local and Media verticals. The company has aggressively returned capital to shareholders through buybacks and dividends, and we expect this behavior to continue.” As a result, Helfstein concludes that “IAC [is] the most attractive vehicle to gain exposure to ANGI/MTCH.”
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,700 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.