[Editor’s note: This story was previously published January 2019. It has since been updated and republished to reflect changes in the stock prices.]
The end of last year brought something not seen in a while—a bear market. As a result, many investors were reeling as stock prices—particularly in the tech industry—massively declined. However, when stocks decline, there is one silver lining that benefits cash-rich investors: cheap stocks.
Many of the best stocks are now trading at low prices. Moreover, when companies with cheap stocks maintain or improve their growth rates, many investors often look to buy their shares. As we begin the new year, the following cheap stocks have those characteristics, leaving them well-positioned to skyrocket in the coming months and years.
Bank of America (BAC)
More than ten years after the financial crisis, Bank of America (NYSE:BAC) is again on a list of cheap stocks. BAC has come a long way since it fell to $2.50 per share at the height of the crisis. Now, it trades at almost $29 per share. Moreover, it resumed annual increases of its dividend in 2014. Today, it returns 60 cents per share of dividends to its shareholders each year, yielding about 2.1%.
However, the forward price-earnings ratio of about nine is what really makes BAC one of the best stocks. The multiple is well below the stock’s five-year average of about 19.
Also, companies whose stocks have single-digit PEs rarely generate double-digit profit increases, but BAC is in that category. Wall Street analysts on average expect the bank’s profits to rise about 121% this year. Moreover, according to the consensus estimate, BAC’s average annual profit increase over the next five years will be around 20.7%.
The stock fell in 2018 amid a number of headwinds. Among these headwinds were the declining results of its investment banking unit, the negative market environment and fears of an inverted yield curve.
However, amid these headwinds, Warren Buffett continues to buy BAC, indicating that the Oracle of Omaha considers it to be one of the best stocks in the market. Also, one can likely assume BAC has become his favorite bank stock. He now has a bigger position in BAC than in Wells Fargo (NYSE:WFC), which used to be his favorite bank stock. Assuming the economy doesn’t nose dive, investors can, like Buffett, profit handsomely from one of the best stocks to buy in the market, BAC stock.
Although it’s not among the more inexpensive stocks in the S&P 500, Canadian cannabis company CannTrust (OTCMKTS:CNTTF) makes the cheap stocks list because it’s inexpensive compared to its peers in the marijuana industry. Unlike most cannabis companies, CannTrust is already profitable, and CNTTF stock has a forward price-earnings ratio of about 57. In an environment in which an industry leader, Canopy Growth (NYSE:CGC), trades at 100 times its sales, CNTTF is a screaming bargain and one of the best stocks in the market.
Canadian marijuana stocks have suffered from a “sell the news” phenomenon since the companies’ principal product became fully legal in their home market.
However, CannTrust is poised to benefit from many trends. For one, it has applied for a listing on the New York Stock Exchange. Joining the Big Board should open up CNTTF stock to a new class of investors. Secondly, although cannabis remains on the list of Schedule 1 drugs in the U.S., the recent legislation that legalized hemp should give all Canadian marijuana firms a foothold in the U.S. market.
The company’s focus on pharma also provides the stock with another potential catalyst. CannTrust sent its first shipment of cannabis oil to Denmark in the third quarter of 2018. It has also entered the Asia-Pacific market, through a partnership with Australia-based Cannatrek. Consequently, even if the company fails to meaningfully penetrate the U.S. market, it still can benefit from overseas expansion.
Furthermore, even though CannTrust’s valuation is lower than that of its major peers, its growth should remain strong for the foreseeable future. On average, analysts predict that its profits will increase by almost 155% this year, making CNTTF a very cheap stock, despite its forward price-earnings ratio of nearly 30. As CannTrust moves into other developed countries and possibly the U.S., a revived interest in cannabis should enable its valuation to catch up with that of its peers.
Few PC-era stocks have suffered as much as Intel (NASDAQ:INTC) has. Once the world’s largest chip maker, Intel stagnated as consumers increasingly turned away from PCs. Intel’s PC-era peers such as Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and even AMD (NASDAQ:AMD) built new business lines and resumed growing. However, INTC stock continued to languish. The high turnover of its top management, as well as security-related issues, also weighed on Intel stock.
However, INTC looks ready to again become one of the best stocks to buy in tech. The company has invested heavily in data-center technology. As a result, its Data Center group appears poised to overtake its PC Client group in size over the next few years.
Due to Intel’s purchase of Mobileye, INTC has become a leader in the autonomous-vehicle market. That, along with the company’s Internet of Things (IoT) products, should help INTC stock rise. And as the advent of 5G makes more advanced applications possible, Intel will benefit even more from these trends.
INTC is a cheap stock due to its price-earnings multiple. It trades at a forward PE ratio of about 10.6, showing that investors have yet to fully appreciate Intel’s comeback.
Due to a temporary glut of chips, Intel ‘s profit growth will be slow this year. However, its profits should resume growing by double-digit percentage rates in 2020. Once investors begin to realize that Intel has resumed a leadership role in the tech industry making it one of the best stocks in the market, it should again command valuations comparable to its peers in big tech.
As of this writing, Will Healy is long CNTTF. You can follow Will on Twitter at @HealyWriting.