In theory, investors shouldn’t care about the price of a company’s stock. What generally matters more is its market cap. And it’s an error to think a stock is cheap simply because its share price is in the low single digits. Investors should use extra caution when searching through low-priced stocks. Oftentimes, stocks that have fallen enough to be trading for just a couple bucks end up falling all the way to zero.
That said, some of the market’s biggest winners also come out of the sub-$5 stock category. Whether the company has a low share price due to falling from glory or just not being discovered yet, these low-priced players can sometimes rocket to crazy heights. Additionally, a lot of funds are prohibited from buying stocks trading below $5, which can help juice upside for individual investors if and when the stock breaks out above that threshold.
So with the disclaimer that these sorts of companies tend to be of the high-risk, high-reward variety, let’s take a look at three cheap stocks under $3 that could fly in coming quarters.
Cheap Stock Under $3: Castle Brands (ROX)
Castle Brands (NYSEAMERICAN:ROX) isn’t just trading under $3, it’s all the way down there at 50 cents. That’s deep into penny stock territory, and it’s ROX stock’s lowest price in six years. And anytime you invest in a 50 cent stock, be prepared for to potentially lose most or all of your money. That said, ROX stock has hit $2 on several occasions in recent years, and the company’s business continues to grow nicely. It wouldn’t be at all shocking if ROX stock quadruples back to $2 a share at some point.
Castle Brands, for those unfamiliar, markets and distributes various liquor and beer brands. Its leading brands are its Goslings ginger beer, and Jefferson’s bourbon. The bourbon label, for example, is one of the top five premium bourbons in the U.S. Jefferson’s has also shown excellent growth in recent years, and some have speculated that the brand, by itself, would be worth more than Castle Brand’s stock price if it were sold off.
ROX stock last spiked to $2 on M&A rumors a couple of years ago. The issue for the company is that it has high overhead costs as an independent company. Ideally, it’d be a part of a larger liquor player which would greatly improve its profitability. Castle Brands still has a ways to go to demonstrate that it can become consistently profitable as a standalone entity. But with any sign of profits or a takeover offer, ROX stock could soar.
Cheap Stock Under $3: B2Gold (BTG)
Canadian-based gold miner B2Gold (NYSEAMERICAN:BTG) is still getting no respect. A year ago, BTG stock was trading around $2.50 per share. Now, the price of gold has broken out above $1,400/oz for the first time in more than five years. Despite that, BTG stock has only advanced about 50 cents bumping it right against our $3 cutoff.
Given its large share count, B2 has a nearly $3 billion market cap. That figure could go a lot higher in coming quarters. The company, unlike many sub-$3 gold stocks, is highly diversified. The company has more than half a dozen mines and development projects, spanning the globe from The Philippines to Colombia, Nicaragua and several African nations.
B2Gold is enjoying a surge in gold production while it has kept its average cost of production under $900 per ounce. With the price of gold now hitting $1,400, B2Gold is set to make close to $500 per ounce from its productions. With gold breaking out, analysts EPS estimates of 21 cents per share should move up nicely, powering BTG stock to as high as $5.
Cheap Stock Under $3: Mizuho Financial (MFG)
Mizuho Financial (NYSE:MFG) is one of Japan’s largest banking conglomerates. The name stands for “abundant rice” in Japanese and signifies a harvest.
Unfortunately, MFG stock owners haven’t enjoyed much bounty recently. The plunge in interest rates isn’t just a U.S. phenomenon; in Japan, much of the bond market is now showing negative yields. This has, understandably, caused investors to fret about banking profits. MFG stock has slumped from $4 to $2.80.
That sets up a big opportunity, however. Mizuho operates in 38 countries, has 60,000 employees, and manages nearly $2 trillion in assets. While banking profits may be slipping at the moment, leading Japanese banks retain great value and will shine again. At a trailing P/E ratio of just 6.4, paying a nearly 5% dividend yield and selling for less than half of book value, MFG stock is a deep bargain under $3 per share.
At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.