While stock markets are flirting with all-time highs, it can be hard for investors to pinpoint cheap stocks. It can feel like every big name or hot newcomer to a growing sector has been bid up too far.
But if you look closely, you will find that not every stock has exhausted its rally.
Despite the markets run this year, there remain a number of stocks that are still relatively cheap and ready for big gains in the coming months. Today, I’m going to focus on some names that have been beaten down in 2020, but which have a path to the upside as we approach 2021. And while cheap can mean different things to different people, we’re going to be focusing on the stock price today.
This list will highlight seven cheap stocks of great American companies that can be bought today for under $55 a share, but could be worth a lot more in the coming months.
The seven cheap stocks I’d like to look at today are:
- Ford Motor Co. (NYSE:F)
- AT&T (NYSE:T)
- Bank of America (NYSE:BAC)
- United Airlines (NASDAQ:UAL)
- GameStop (NYSE:GME)
- Cisco Systems (NASDAQ:CSCO)
- Coca-Cola (NYSE:KO)
Cheap Stocks Ready for Big Gains: Ford (F)
Shares of Ford are already breaking out, up 40% since the end of September. But at the current price of $9.24 a share, F stock remains a steal. After years of lackluster performance and repeated turnaround attempts, the automaker appears to finally be righting its ship, and shareholders are reaping the rewards.
Analysts and investors cheered the company’s better-than-expected third-quarter earnings and loved that Ford announced that it now expects to post a full-year profit. Not bad considering the impact that the global pandemic has had on consumer spending and vehicle purchases in general.
Net income in the third quarter came in at $2.4 billion on revenue of $37.5 billion. Furthermore, Ford earned $3.6 billion, or $0.65 per share, on an adjusted basis. Continued strong demand for pick-up trucks and sport utility vehicles (SUVs) in the U.S., along with higher sales in China, drove the better-than-expected results.
Sales should get a further boost when three new products — the all-new F-150 pick-up truck, the electric Mustang Mach-E and the compact Bronco Sport SUV — launch in the next few weeks. Plus, Ford is now finishing refurbishing many of its assembly plants and preparing them to manufacture its coming onslaught of electric vehicles, which the company sees as the future of the automotive industry.
AT&T is a well-known American company and blue-chip stock that is quite cheap at about $29 a share. T stock is still down 27% from its 52-week high of $39.55 a share.
Yet there’s plenty of reasons to be bullish on AT&T. First, the company is heavily invested in the 5G rollout that is now taking place. That should help to power growth moving forward. Second, AT&T is a leader in the fast-growing area of quantum computing. Specifically, the company is developing security in communications through quantum networking technologies. The company has said that quantum networking will lead to a new era of fast, secure communications networks.
Investors should also be aware that T stock is a dividend king. The company’s current dividend stands at $2.08 per share, providing shareholders with a yield of more than 7%. Also, AT&T has hiked its dividend payout for 35 straight years, making it a true “dividend aristocrat.” This fact should certainly make AT&T stock attractive to investors seeking a steady stream of income.
Analysts remain enthusiastic about AT&T. Among 25 analysts offering 12-month price forecasts on the stock, the median target is $31 a share, with a high estimate of $38. Getting shares while they’re still below $30 could end up being a bargain.
Bank of America (BAC)
Now we come to Warren Buffett’s new favorite stock. The Oracle of Omaha has bought more shares of Bank of America in 2020 than any other stock. In late July and early August, Buffett bought $2.1 billion worth of Bank of America stock during a binge that lasted 12 consecutive trading days. He now owns 12% of America’s second largest bank.
While there are sure to be many reasons why the world’s most successful investor likes BAC stock, the cheap price is certainly one of them. In the summer when Buffett bought shares, the price was hovering right around $25. The share price has since increased 16% to about $29 per share. But there still looks to be plenty of room for this bank stock to run.
While 2020 has been a tough year for the banking sector as a whole and for banking stocks, Bank of America was doing quite well before the Covid-19 pandemic. The company remains a global leader in mobile and online banking and has improved its efficiency and profitability, both of which would no doubt be looked on favorably by Warren Buffett.
In 2019, Bank of America boasted a 11.3% return on equity (ROE), 1.21% return on assets (ROA) and a 58% efficiency ratio — all of which are stellar numbers. Investors looking to buy a U.S. bank for the economic recovery that is expected in 2021 should consider BAC stock, which is among the cheapest of all the major American lenders.
United Airlines (UAL)
Investors should also have an airline stock in their portfolio for the economic recovery, especially as travel demand increases in 2021. And few airlines stocks are more affordable than United Airlines. At just under $50 a share, UAL stock is 45% below its 52-week high of $90.57 a share. The stock has been trending higher in recent weeks on news of a vaccine against Covid-19 and is sure to continue rising as people begin traveling again for work and leisure in 2021. The recent surge in air travel during the Thanksgiving holiday is just a taste of what can be expected once vaccinations begin in earnest in the next six months.
Like many companies, United Airlines was doing just fine before the global pandemic decimated the aviation industry. The company’s revenues grew by 14% over the past five years, from $38 billion in 2015 to $43 billion in 2019. The air carrier’s earnings per share (EPS) increased by 71% from $6.77 in 2016 to $11.58 in 2019 due to lower shares outstanding.
United has also announced that it will raise $1 billion from a secondary stock offering. While investors may not cheer that news, it will help the airline get through the final leg of the pandemic and emerge stronger on the other side come 2021.
GameStop’s share price has performed incredibly well in 2020. GME stock has risen 522% since its April low of just $2.57 a share. Yet the stock now trades around $16 per share.
Headquartered outside Fort Worth, Texas, the American video game, consumer electronics and gaming merchandise retailer has performed extremely well in what has arguably been one of the toughest years on record for retailers. The company’s stock recently rose 11% on Black Friday after Thanksgiving.
GameStop has capitalized on the trend toward video gaming during the pandemic as people shelter-in-place at home. But the company has also succeeded by moving a lot of its sales online, while many of its physical store locations have been forced to close during the pandemic. The recent releases of new video game consoles from PlayStation and Xbox should further boost sales during the busy holiday period.
While some analysts question the company’s ability to maintain momentum in a post-Covid-19 world, GME stock has attracted several high-profile investors this year, including Ryan Cohen, who co-founded pet food retailer Chewy (NYSE:CHWY) and holds a nearly 10% stake in the company, and Michael Burry, who famously shorted the sub-prime mortgage market ahead of the 2008 financial crisis.
Cisco Systems (CSCO)
Cisco stock has been on a roll lately. CSCO stock jumped in recent weeks on news of an earnings beat and strong forecast, as well as the disclosure that former U.S. Vice President Al Gore’s investing firm, Generation Investment Management, has purchased a big investment in the San Jose, California-based networking giant.
The company posted earnings of 76 cents a share versus 70 cents per share expected by analysts. Revenue for the first fiscal quarter of 2021 came in at $11.93 billion compared to $11.85 billion expected by analysts. Cisco stock is up 35% from its March low when the market crashed and now trades just under $44. However, the share price remains below its 52-week high of $50.28 and is poised for big things in 2021.
On the horizon for Cisco are plans to increase Black representation among executives by 75% and integrating BabbleLabs, a recent acquisition with software that can improve call quality. Cisco also has announced plans to enhance its Webex software over the coming year.
Analysts like what they see from Cisco and see real value in the company and its current stock price. Among analysts offering 12-month price forecasts for Cisco Systems, the median price target on the stock is $49 per share, with a high estimate of $60. Get in now while the getting is good, so to speak.
Shares of Coca-Cola are close to our cutoff, priced at more than $50, but that’s only recently. KO stock has largely been stuck in neutral this year as the Covid-19 pandemic has depressed beverage sales at sporting events and other live venues around the world. But at its current price of around $52 a share, Coca-Cola stock is still cheap.
Before Covid-19, the stock was consistently trading right around $60 per share. The stock has increased 9% in November, largely on news of a Covid-19 vaccine and excitement around the global economy re-opening. That’s right, Coca-Cola is a re-opening play.
Beyond the pandemic, Coca-Cola is moving forward with a major strategic makeover that it has been planning since 2017. The makeover involves reducing its total number of brands by 40%, cutting the line-up from 500 brands to 300; cutting jobs, including approximately 4,000 North American positions; and lowering its marketing spending, which, driven largely by digital advertising, totaled $4.24 billion in 2019. The restructuring should help Coke emerge from 2020 a leaner and meaner company ready to continue dominating the cola wars.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.