As Warren Buffett likes to say, “price you what you pay, value is what you get.” It’s the reason why a $300-per-share stock can be cheap, while a $3 one can be expensive. With that said, there’s something about low-priced stocks that captivates investors’ imaginations. After all, there’s nothing like being able to buy a ton of shares for dirt cheap and having them take off. And there is some method to this madness.
For example, the Fidelity Low-Priced Stock Fund (MUTF:FLPSX) has managed to return nearly 15% annually over the last 10 years. That return has managed to beat both the small-cap-focused Russell 2000 and Russell Midcap Index over that time. Low-priced stocks can be a big source of additional alpha and returns.
The key is that many low-priced stocks are cheap for a reason. Finding the ones that have the potential for greatness or overcoming their issues is vital. They are a gamble, but the payoff can be big for portfolios. The idea is to keep your bets small and broad.
For investors looking to put some risk capital to work, here are five low-priced stocks that have great potential in the new year.
Dova Pharmaceuticals Inc (DOVA)
Closing Share Price on Dec. 19: $6.07
Over the summer, Dova Pharmaceuticals (NASDAQ:DOVA) was riding high. The biotech firm had scored an approval for their drug Doptelet. The drug is used to treat thrombocytopenia — which is a low-blood-platelet disorder. With that disease, patients find it hard to form blood clots and suffer major bleeding from even a small injury. The drug has plenty of blockbuster potential. Unfortunately, that potential hasn’t lived up to expectations.
Management recently cut sales guidance for the drug down to just $2.4 million. That’s about half of what Wall Street is looking for. At the same time, several key executives have recently left the company. Naturally, investors are spooked and shares have nose-dived, dropping from a recent high of about $30 per share down to under $7.
But that could be a great buying opportunity for this low-priced stock.
For one thing, the potential for Doptelet is there. DOVA is looking to fast-track Doptelet for other indications of thrombocytopenia. That will expand the usage of the drug and bring in more revenues. Secondly, Dova has replaced many of its outgoing managers with executives from winning biotechs like United Therapeutics (NASDAQ:UTHR) and Vertex (NASDAQ:VRTX).
With that, analysts still have price targets in the $20 to $30 range on this low-priced stock.
Closing Share Price on Dec. 19: $5.81
Internet travel websites are known for their profitability, as their margins remain crazy high. However, for hotel booking site Trivago (NASDAQ:TRVG) that hasn’t been the case over the last year or so. TRVG has spent much of the last few quarters disappointing investors and has lost money. That’s sent shares tumbling and below $6 per share.
However, TRVG may be a bargain among low-priced stocks.
For one thing, the bleeding seems to have stopped. While revenues continue to drop, profits have come back to the travel site. Trivago managed to post net income of 10.1 million euros or around 0.03 euros per share last quarter. Analysts were looking for another loss.
And other things have gotten better for TRVG as well. Returns on advertising spend jumped by 25 percentage points to reach 135.9%, while the firm continues to see improvement/demand from its mobile site. Additionally, Trivago continues to see huge listing numbers — over a million places — from so-called alternative accommodations, including private apartments and vacation rental properties. This is great considering this is the fastest-growing section of travel booking. All in all, analysts expect the firm to continue to see profits in 2019.
When it comes to low-priced stocks, Trivago’s turnaround is one to bet on.
Closing Share Price on Dec. 19: $9.23
With volatility and uncertainty rising, gold has been riding high over the last few quarters. That surge in gold prices hasn’t exactly reached former gold stock kingpin Goldcorp (NYSE:GG), though. In fact, the GG share price currently places it among the low-priced stocks and castaways of the mining sector. The gold miner’s stock has now fallen to levels not seen since 2002!
And part of that decline is justified.
Goldcorp continues to be hit on several fronts. During the spring, the miner reported lower production and rising all-in costs. This trend continued during the fall. Last quarter, Goldcorp once again showed a decline in production — by roughly 20% — and saw its all-in sustaining costs surge higher. That’s terrible. Essentially, GG hasn’t been able to capitalize on the higher gold prices and is now earning less on what it does mine.
But there may be some hope for this low-priced stock.
Goldcorp mentioned that drop in production was a short-term dip due to lower one-time output at the company’s Penasquito mine. Meanwhile, the firm has made significant progress on its 20/20/20 plan, which will see production rising by 20%, costs falling by 20% and asset reserves growing by 20%. Ramped-up production at its Eleonore and Cerro Negro mines have helped here. Moreover, GG is producing decent cash flow and has resumed its dividend payment.
If management can execute on its plan, GG stock should regain much of its former glory. That makes it one of the best low-priced stocks to snag in the mining sector.
Barclays PLC ADR (BCS)
Closing Share Price on Dec. 19: $7.46
One of the biggest shadows on the entire market happens to be the dreaded Brexit. Naturally, the U.K.’s exit from the European Union hasn’t gone smoothly. Heck, at this point, an exit might not happen even at all. Because of that, it has thrown plenty of uncertainty over stocks in the United Kingdom. This includes U.K. banking giant Barclays PLC ADR (NYSE:BCS).
BCS never fully recovered from the financial crisis, and the latest Brexit woes have put a hurt on its share price, which currently rests below $8 per share. But that low price does offer some bang for the buck.
For one thing, Barclays is dirt cheap and can be had for a forward P/E of around its share price. At the same time, it has a price-to-growth ratio of less than 1. That means would be investors are not paying much for its current earnings nor its future projections. Those future projections are coming from its continued moves to court more international high-net-worth investors from the Middle East. Additionally, recent moves into Fintech have improved BCS margins.
All of this is starting to pay-off. Last quarter, BCS saw some big jumps to its profits and revenues- despite the Brexit mess. The firm reported EPS of £0.07 and total net income of £5.13 billion. This was roughly double what analysts expected it to earn per share. The hope is that Barclay’s can keep it going with the world’s economy getting a bit rocky.
But with its rock-bottom P/E and PEG, the bank is a prime example of value among low-priced stocks today.
Closing Share Price on Dec. 19: $7.49
Sometimes low-priced stocks are being punished for things that happened years earlier. Case in point, real estate investment trust Vereit (NYSE: VER). VER’s issues started back in 2016 when it was called American Realty Capital Properties. American Realty was created by combining several non-traded REITs, and it quickly became one of the largest single-property REITs in the country. At its peak, it held more than 4,600 different properties. Unfortunately, executives at the firm weren’t so great and it turned out that they used all sorts of questionable accounting tricks.
Naturally, shares of VER sank like a stone when the news came out. Several lawsuits, jail time, a dividend cut and a name change bring us to Vereit. And that’s actually a good thing.
The new management at the firm has worked to reduce and prune its portfolio of underperforming and “flat” leased properties. Debt reduction and bolstering its balance sheet have also been a priority. These efforts have helped and VER finally started to turn the corner. Cash flows continue to be robust and the firm is able to pay its juicy 7%-plus yield.
The problem remains the overhang of lawsuits from shareholders. But with many shareholders already settling, VER is getting closer to being 100% free from its past. With the end in sight, the real estate firm could be one of the most sure things when it comes to low-priced stocks.
Disclosure: At the time of writing, Aaron Levitt did not have a position in any of the stocks listed, but may initiate a position in DOVA.