I’ve got $3,000 to spend on three large-cap stocks under $10. Of the 29 choices at the moment, I’ve got to go with Ambev (NYSE:ABEV) as one of my three picks. Besides ABEV stock, what’s made the cut? Read on, and I’ll give you my other two selections and explain why.
May the best stock win.
Choice # 1 is Beer Money
Of the three low-priced large-cap stocks, Ambev at $4.50 a piece has the lowest share price of the bunch. However, it’s not just that I can buy 200 shares with my $1,000 investment. It’s the fact that Ambev provides investors with the right combination of value and growth, something hard to come by at this price point.
If you’re unfamiliar with Ambev, it’s a Brazilian company that makes and sells beer in 14 Latin American countries and Canada. In 2018, it generated $12.8 billion in sales and $2.9 billion in net profits from those 15 markets.
Of the 15 markets, Canada had the highest gross margin in 2018 of 65%, contributing 14.3% of the overall revenue. As for its home market of Brazil, it contributed 54.2% of Ambev’s total revenue in 2018 at a healthy 63% gross margin.
As Brazil goes, so goes Ambev.
So, why is ABEV stock trading at just 22.6 times forward earnings?
Well, a big part of the answer has to do with the fact it’s a controlled company.
Both Interbrew International B.V. and AmBrew S.A., which together own 61.9% of Ambev, are subsidiaries of Anheuser-Busch InBev (NYSE:BUD). These two subsidiaries, along with Fundacao Zerrener (the foundation of one of Ambev’s founding families), control 71.5% of the stock and have a shareholders agreement that protects Anheuser-Busch InBev’s best interests.
Therefore, when you buy ABEV stock, you have no control over what happens, making BUD a more direct and value-added investment.
However, if you believe that Latin America is ready for an economic boom, as I do, buying ABEV stock makes more sense because you’re benefiting directly from that economic growth.
And, it’s a lot cheaper in real dollars at $4.50 than BUD is at $89.25.
Choice # 2 is a Familiar Name
Just making it under the $10 wire is Ford Motor Company (NYSE:F), which not too long ago was trading below $8, before going on a big run in 2019.
Here’s why I called Ford the best stock under $10 in December.
“I’m not a big fan of Ford, the automaker, but I can’t help wondering if the pain Ford stock has suffered in the past two years, is slowly coming to an end,” I wrote Dec. 26.
“With a yield of 7.3% and trading well under $10, it makes you wonder why Ford stock is so cheap. In fact, it might not be the worst bet you can make in 2019. After all, if it were to double somehow in 2019, you’d finish the year with a very reasonable 3.65% dividend yield and a stock in double digits.”
While it’s not quite there yet, Ford’s yield is down by 100 basis points since the end of 2018, and its stock is up 24% year to date, closing yesterday at $9.50.
With the company introducing some attractive vehicles in recent months, Ford stock is much more attractive today than it was a year ago, a reality I discussed recently, suggesting $20 was a possibility. That’s something I wouldn’t have said a year ago.
Choice # 3 Takes Contrarian Stand
InvestorPlace contributor and IPO Playbook Editor Tom Taulli knows a thing or two about tech growth stocks. So, when I read that he’s recommending investors avoid Sirius XM Holdings (NASDAQ:SIRI), for now, I wondered if I wasn’t making a mistake making SIRI stock my third choice under $10.
Although Taulli likes the company’s share repurchases — it bought back 209 million shares of its stock in 2018 for $1.3 billion and has added $2 billion in share repurchases to the $1.3 billion remaining at the end of the fiscal year — he reminds readers that with the exception of its Pandora acquisition, SIRI has little to no growth on the horizon.
Higher earnings equal higher share prices.
My take is a little contrarian to Tom’s. By spending $3.5 billion to acquire Pandora, Sirius XM gained entrance to the online music marketplace, a much more lucrative and sustainable business model than satellite radio.
Don’t get me wrong; I love satellite radio. Out here in Atlantic Canada, it’s a must own.
However, if Sirius wants to recruit people like myself to its online streaming subscription service — it just launched “Essential,” a service that will cost $1 per month for the first three months and $8 per month thereafter — it had to acquire Pandora or a business like it to go beyond the 300 or so stations it offers on satellite radio.
Simply put, as soon as I can buy a monthly service for both my car and online that combines Sirius XM and Pandora, SIRI will have hooked me for life; I’ll never use one of the other providers again.
When that happens, I could easily see it rising to $10 and beyond.
How would you invest your $3,000?
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.