Ordinarily, an economic crisis would result in an abundance of high-quality cheap stocks to buy. But the novel coronavirus pandemic is no ordinary downturn. Instead, the troubles caused by the still-raging virus has produced a strange dichotomy. While underlying fundamentals are either poor or vulnerable, the equities market continues to outperform, which seems contradictory.
In this new normal, viable cheap stocks aren’t easy to find. Sure, you can always look for companies that have a sharply reduced valuation: the coronavirus has left a wake of bankrupt corporations or those on the very edge of collapse. But the point for any contrarian investor is to buy low and sell high, not buy low and sell even lower.
On the other hand, many publicly traded securities have skyrocketed off their March doldrums of this year. Therefore, the truly high-quality names have been bid up. Additionally, we must remember that stock ownership varies dramatically across demographic categories. For instance, a Gallup poll revealed that young people (ages 18 to 29) mostly do not own stocks, nor do many communities of color.
In other words, don’t be discouraged that you’re not finding cheap stocks to buy right away. Since market participation is not holistically robust, there’s bound to be overlooked opportunities.
Moreover, while the Trump administration has done an admirable job helping to drive down the national unemployment rate much quicker than anticipated following the initial shock of the Covid-19 pandemic, we still have a long way to go. For the week ending Oct. 31, another 751,000 Americans filed for unemployment benefits. While a big improvement from months ago, this historically high figure suggests many sectors are still hurting. But that leaves a contrarian opportunity for these cheap stocks to buy.
- American Well (NYSE:AMWL)
- Clearway Energy (NYSE:CWEN)
- Huya (NYSE:HUYA)
- Momo (NASDAQ:MOMO)
- B2Gold (NYSEAMERICAN:BTG)
- Sportman’s Warehouse (NASDAQ:SPWH)
- Verso (NYSE:VRS)
- Empire State Realty Trust (NYSE:ESRT)
- Cinemark (NYSE:CNK)
On a final note before we dive into the subject, barring an unusual event, we will have a transition of power. From my perspective, the American people seem very enthusiastic about President-elect Joe Biden, who recently gave a speech of unifying this fractured country. That’s the kind of narrative that could breathe new life for these cheap stocks to buy.
Cheap Stocks to Buy: American Well (AMWL)
Before the pandemic, telehealth specialists like American Well offered investors a relevant pathway to profitability. Although technology supposedly improves our productivity, we find ourselves being busier than ever. Thus, millions of people simply don’t have the time to consult medical professionals for consultations and checkups. Naturally, AMWL stock benefited from this burgeoning demand channel.
Of course, the Covid-19 pandemic catapulted the underlying narrative for AMWL stock. As you know, one of the hottest names in the market has been Teladoc Health (NYSE:TDOC), a rival to American Well. With people having every incentive to avoid healthcare facilities, the importance and relevance of telehealth services soared exponentially.
At the same time, this narrative is a known factor. Therefore, on paper, you wouldn’t classify TDOC as one of the cheap stocks to buy. But at a little over $30, AMWL is an intriguing bet.
Clearway Energy (CWEN)
If you’re looking for cheap stocks to buy, the logical place to search is in the clean and renewable energy sector. During the second presidential debate between Joe Biden and incumbent President Donald Trump, the former Vice President stressed the importance of reaching net-zero emissions. Obviously, this caught the eye of the fossil-fuel industry, which on surface level has an existential threat.
Still, I wouldn’t place too much emphasis on Biden’s words. With our growing population and greater power needs, we need more sources of energy, not less. Plus, millennials and Generation Z care deeply about environmental issues. Therefore, Clearway Energy and specifically CWEN stock enjoy relevance no matter what.
But it doesn’t hurt that Biden plans to “follow the science,” and not just on Covid-19. Instead, his administration could bolster environmental protocols that Trump put to the wayside. Better yet, CWEN stock can be had for under $30, which is a far cry from other clean energy investments that have a richer price tag.
Out of the policy differences between President-elect Biden and President Trump, their stance on China stood out as arguably the biggest. Across the political spectrum, you should find consensus that the world’s second-largest economy is our rival. But because it’s so influential, U.S.-China diplomacy is a minefield that requires a deft touch.
I’m not suggesting that Biden has that touch, to be clear. Likely, though, he’ll do a better job than Trump, who seems intent on burning all bridges until the Chinese squeal. With a shift in tone, this could benefit Chinese video game developer Huya. While HUYA stock may not be a direct political play, not having a critical trading partner turn heated adversary is beneficial to most Chinese companies.
Further, this was already one of the more intriguing cheap stocks to buy because of the underlying business. Due to coronavirus-fueled restrictions, online and at-home entertainment options became incredibly popular. This sentiment will likely maintain momentum, boding well for HUYA stock.
A China-based social networking and instant messaging app, Momo is a speculative though compelling opportunity among cheap stocks. In the early summer of 2018, MOMO stock briefly traded above the $50 level. However, shares declined since then, coinciding with gradually deteriorating relations between the U.S. and China.
Still, since late September 2019, MOMO stock was on an uptrend. At the time, the U.S. and China were warming up to the idea of a restoration in trading partnerships. Naturally, improving consumer sentiment is a positive for social networking sites. Bluntly, there’s no point in trying to meet that special someone if you don’t have some financial security.
With Biden winning the 2020 election, though, at least one variable appears to be behind us. Further, with MOMO trading hands at less than $15, this is a tempting idea for cheap stocks to buy.
As you know, gold prices have soared this year due to a litany of events that pointed to deep fracturing in society. In addition, the economic uncertainty resulting from the novel coronavirus pandemic has put everyone on edge. Of course, because most people had the same idea, it’s harder to find cheap stocks in the precious metals space.
Nevertheless, if you can stomach volatility, you may want to check out B2Gold. Self-described as a low-cost international senior gold producer, what attracts contrarians to BTG stock is the discounted price relative to other gold miners. Trading at just a hair under $7 at time of writing, B2Gold is compelling because the fundamentals of fear and uncertainty are incredibly relevant.
In such unpredictable times, a premium exists for reliable safe havens. Still, not too many people want to deal with physical gold bullion. Instead, they can bank on a derivative investment like BTG stock.
Sportsman’s Warehouse (SPWH)
When Biden took the stage after projections stated that he had accrued more than enough electoral votes to become the next President of the United States, his charm and humanity were on full display. I can see why people like him beyond the fact that he’s not Donald Trump. But his White House victory also sent a chill down gun owners’ spine, which could have strong implications for Sportsman’s Warehouse.
Both Biden and his running mate Senator Kamala Harris are notorious gun control advocates. According to Biden’s plan for gun safety, he intends in part to ban the manufacture and sales of “assault weapons.” By that, I’m assuming he means semiautomatic AR-15 and Kalashnikov-styled rifles or what I call the fun stuff. With the opportunity to ownership potentially declining, we could see a mad rush into SPWH stock.
Further, Biden seems to imply that currently owned “assault weapons” can still be in private hands, so long as they’re registered under the National Firearms Act. So, if you want to buy an AR-15, it may be speak now or forever hold your peace (or is that “piece”)? Therefore, SPWH stock could see a near-term spike.
At first glance, you might not think Verso is a viable candidate among cheap stocks. Sure, VRS stock is cheap in the sense that it’s currently trading hands at single-digit prices. But is the business relevant? After all, part of Verso’s revenue stream comes from graphic and specialty papers, which are used in “commercial printing, media and marketing applications, including magazines, catalogs, books, direct mail, corporate collateral and retail inserts.”
Well, you don’t want to jump to conclusions just yet. Because the other component associated with VRS stock is its underlying mail packaging business. That’s going to be particularly important due to sharply rising Covid-19 cases, which only incentivize deliveries and contactless consumer options. According to government data, e-commerce as a percentage of total retail sales hit 16.1% in the second quarter.
Moreover, President-elect Biden intends to listen to scientists regarding Covid-19 mitigation efforts. Unfortunately for us, that could mean more lockdowns if cases get out of control. Therefore, VRS stock still has much relevance left in it.
Empire State Realty Trust (ESRT)
For my last two ideas regarding cheap stocks to buy, I’m going to go ultra-speculative. By no means should you invest a penny more in these highly risky ventures than you can comfortably afford to lose.
First up is Empire State Realty Trust, a real estate investment trust (REIT) that owns the Empire State Building, hence the name. In addition, the company features an enticing portfolio of office property in and around New York City.
Of course, the knock on ESRT stock is that the Big Apple is dead. While the coronavirus has taken its toll on major cities throughout the world, Gotham is particularly embattled. However, this leaves a massive contrarian opportunity for those that have the audacity to bank on the iconic city.
Further, according to the New York Times, Facebook (NASDAQ:FB) in August “agreed to lease all the office space in the mammoth 107-year-old James A. Farley Building in Midtown Manhattan, cementing New York City as a growing global technology hub and reaffirming a major corporation’s commitment to an office-centric urban culture despite the pandemic.”
This is as clear of a signal as you’re going to get that big corporations anticipate a return to normal. Therefore, ESRT stock is probably the most compelling high-risk, high-reward opportunity.
One of the key differences between this crisis and prior economic downturns is the role of Hollywood. Historically, the box office has been a source of escapism from the stresses and struggles of a recession or depression. Indeed, the golden age of Hollywood sprouted during the Great Depression era. But with Covid-19, movie theater operators like Cinemark faced a severe threat to their business model.
For starters, nobody wanted to be in an enclosed environment with possibly hundreds of other strangers. In some situations, such as traveling by air, the risk cannot be avoided. However, watching a movie is not an essential activity. Thus, people avoided the box office, tanking CNK stock.
Second, the traditional film industry already faced competition from streaming services such as Netflix (NASDAQ:NFLX). Logically, the pandemic only made this situation worse. With millions working from home, their natural source of entertainment was through their living room television set. That left little upside potential for CNK stock.
So, why mention Cinemark on this list of cheap stocks besides the obvious? At some point, people are going to get tired of sitting at home all day. Further, with compelling films backlogged into 2021, CNK could enjoy explosive growth. Still, you want to be careful because things can just as easily go awry.
On the date of publication, Josh Enomoto held a long position in gold.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.