The word “cheap” can mean different things to different people. The associations can be positive and negative, and it’s no different when it comes to investing and the discussion of cheap stocks. That said, let’s examine the brighter side of this contested measure of value and offer three cheap stocks which look buyable right now based on evidence offered both off and on the price chart.
Famed value investor Warren Buffett may have said it best with the words, “price is what you pay; value is what you get” as it relates to the purchase of so-called cheap stocks. Part of this important message infers cheap stocks can be found at record highs with shares commanding triple-digit price tags.
In the current market, some investors might argue — ironically enough — that Buffett’s Berkshire Hathaway (NYSE:BRK.B) is just that sort of cheap stock. Others on Wall Street might pound the table defending the world’s largest company, Apple (NASDAQ:AAPL) as a cheap stock based on a particular metric, outlook, or relative value to other large-capitalization technology companies. But I’m not here to judge on either count.
Equally, cheap stocks are often available to buy at attractive valuations after falling out of favor with investors. Here too, Buffett’s similarly famous “buy when others are fearful” comes to mind. But so does Delta Airlines (NYSE:DAL) airlines and the warning, “The world has changed for the airlines.” Sometimes even the best of the best get it wrong after a deliberate kicking of the tires. Sorry, Warren.
Along those latter and often obfuscated lines, let’s look at three cheap stocks based on various factors of value off and on the price chart which are shaping up as big-time buys:
Now, let’s dive in and examine each one.
Cheap Stocks to Buy: Walgreens Boots Alliance (WBA)
The first of our cheap stocks to buy are shares of Walgreens. Despite offering essential services during the novel coronavirus pandemic, this current dividend dog within the blue-chip Dow Jones Industrial Average has only grown more valuable in more than one way.
Moreover, the current forward price multiple for WBA stock is offered at a below-the-market 8.1 times earnings. At the same time, a decline of about 32.5% in 2020 should have the interest of income investors as its dividend yield has grown from 3.10% to an even more attractive 4.86%. The icing on the cake for this cheap stock however, might be Walgreen’s technical picture.
As the illustrated monthly chart reveals, shares appear to be turning the corner higher on heavier and above-average volume. Coupled with an oversold buy signal from the stochastics indicator and WBA stock shares sporting a confirmed candlestick within a key longer-term support zone, this cheap stock is ready to buy today.
Favored Strategy: Jan. $35/$45 Collar
The next of our cheap stocks to buy is Dropbox. This cloud-based storage play is another name which has been left behind in 2020. And while it might not be entirely appropriate to call it an essential service, the work-from-home trend should continue to benefit DBX stock long after the coronavirus pandemic is in the rearview mirror.
Off the price chart, Dropbox shares appear attractively priced at 20.6 times earnings and just over 4.4 times sales. At the end of the day, Wall Street’s blind eye has allowed DBX stock to be well-priced compared to many of its dearly-held peers which are still struggling with profitability and outlandish sales ratios.
Moreover, an additional teaser for this cheap stock may be the acquisition of Slack Technologies (NYSE:WORK). Shares of WORK stock were another “overlooked” work-from-home tech play just purchased by Salesforce.com (NYSE:CRM) for a premium of 55% over Slack’s market price.
Technically, a monthly chart higher-low pattern backed by a supportive, neutrally-positioned stochastics buy signal makes DBX stock a compelling cheap stock to own with limited downside risk relative to upside potential.
Favored Strategy: April $22/$27 Bull Call Spread
Cheap Stocks to Buy: Gilead Sciences (GILD)
California-based Gilead Sciences is the last of our cheap stocks to buy. The biopharmaceutical large-cap is probably best known for its amazing stock run a few years ago on the back of its stranglehold in the Hep-C market. But that success perversely left Gilead with a big hole to fill.
Currently, the company’s diversified portfolio of drugs is rising to the occasion; Albeit without investor fanfare earlier this year tied to Gilead Sciences profiteering from the coronavirus pandemic. However, when looking at a cheap stock which fetches less than 9x forward earnings and PEG (price/earnings to growth) ratio of 0.43, there’s a lot to like about GILD stock’s prospects. And right now, that optimism includes a supportive monthly price chart.
Technically, Gilead shares have just confirmed a third test of the 50% retracement level dating back to around the financial crisis of 2008 – 2009. The price action has also taken on the shape of a triple-bottom pattern. Nice, right? And with stochastics bullishly signaling in oversold territory, this cheap stock to buy appears even more valuable as a purchase right here, right now.
Favored Strategy: Feb. $62.5/$70 Collar
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.