What defines cheap stocks? To one investor that might mean one with a low price-to-earnings ratio relative to peer stocks within the same industry vertical. To another, that might mean those within so-called penny stock territory. Regardless of how a given investor defines it, there certainly is some subjectivity attached to the idea of “cheap stocks to buy now.”
So it’s easier to attach objective measures to cheap stocks rather than leave any ambiguity. Writers like myself could easily write an article sliced up in any number of ways. The theme of this article though is cheap stocks to buy now under $20.
I personally like to research and recommend equities which have a blend of both growth and value factors. Stocks that are too heavily growth oriented tend to be overly volatile and too much of a guess.
Conversely, value stocks look safer, yet run the risk of never garnering attention. Investors who purchase such stocks run the risk that share value will stagnate simply because the shares may never become in demand, i.e., they remain forever undervalued.
To summarize my approach, this list of stocks will have macroeconomic catalysts to help them pop, value metrics and a current share price under $20.
- DouYu International (NASDAQ:DOYU)
- Zynga (NASDAQ:ZNGA)
- Ares Capital (NASDAQ:ARCC)
- Hanesbrands (NYSE:HBI)
- Veeco Instruments (NASDAQ:VECO)
- PDC Energy (NASDAQ:PDCE)
- Brightcove (NASDAQ:BCOV)
Cheap Stocks to Buy Now: DouYu (DOYU)
DouYu is a gaming-focused live streaming platform headquartered in Wuhan, China. The company’s apps are both PC and mobile compatible, and the focus is e-sports heavy. Investors will recognize that the obvious overarching catalysts are the large installed Chinese user base, and a burgeoning e-sports market. The company touts the capability of its big data-driven proprietary analytics system to drive insights and growth.
If quarter-over-quarter revenues are any indication, then the company is indeed succeeding. DouYu recently reported earnings which should entice DOYU stock investors. Q3 2020 revenues increased 37% to $373.3 million and net income moved into the black. Q3 net income was $8.7 million compared to a $25.1 million dollar loss in the corresponding period of 2019.
Investors follow revenues, even in the case that they don’t correspond to profits. Markets reward companies that can sell products and services early in their lives as corporate entities. As those companies improve operations and move into the black, investors begin to pile on. This is where DouYu currently finds itself — in the black and in a burgeoning geography and market.
And shares can be had for under $13 a piece currently and are worth a look. Wall Street is hesitant – with six “holds” and two “buys” — but there are many indications that this company could jump.
Zynga shares currently sit at about $8.60, and are up year-to-date by almost 43%. The company’s goal is to connect the world through games and to that end it focuses on social gaming. Some readers will be familiar with Zynga titles FarmVille and Words With Friends.
Investors though, will be equally interested to learn that Zynga booked its best quarter by revenue in its history recently. Q3 2020 revenues hit $503 million, a 46% year-over-year increase. Revenue is great, but cash is king. The company generated $113 million in operating cash flow in Q3, a company record. This means that the game maker generates enough cash to grow its operations internally.
While the company has been able to internally produce positive cash flow which is a sign of health, it has not been as strong at investing capital. In fact the company carries an ROIC of -12.24%.
ZYNG investors who weigh the ability of the company to produce cash for growth internally versus its ability to use that generated externally and internally can make their own judgment as to which is better. If I were an executive in the firm, I’d be more impressed with the operating cash flow than distressed by ROIC.
The company has room to improve, but Wall Street is very keen on it regardless. Some 14 of the 19 analysts covering the equity currently have it rated a “buy.”
Ares Capital (ARCC)
Ares Capital is another Wall Street darling which is essentially a unanimous buy, according to analysts. It is also still under $20, and has shown a lot of upward momentum in the last month, so ARCC shares may not be under $20 for much longer.
The company is a direct lender with a diversified portfolio of holdings, nearly 20% in healthcare, and about 13% in software. Ares has 347 holdings within its portfolio and seeks private, middle-market companies in need of financing.
The company is technically what is known as a business development company (BDC), a particular corporate structure created in 1980. BDCs are intended to provide public investors a means by which to invest in private U.S. businesses. In both Q2 and Q3 the company has recorded EPS beats and Wall Street probably values that along with the company’s ability to act as an entry point into private U.S. business investment.
Ares Capital could really take off on a rebound in the U.S. economy in 2021 as we rebound out of the pandemic.
Hanesbrands stock recently released Q3 earnings and suffered a 18.57% loss from Nov. 4 to Nov. 5. Although the company showed increased earnings it provided guidance going into the holiday season indicating weakening sales prospects.
Essentially the company didn’t quite live up to analyst expectations and suffered for it. But HBI stock has been steadily climbing since that time from about $12.85 per share to now over $14.
Hanesbrands sits well below $20, and is temporarily down, but there’s a bullish case to be made. Simply put, the company is ubiquitous and has well-known brands which should sell.
The company highlights the fact that “nearly 90% of U.S. households have our company’s products in them.” You, dear reader, may have the label somewhere on yourself right now.
With Christmas approaching, I wouldn’t be surprised at all to see the company surprise relative to previous guidance. The simple fact is that Hanes shirts, socks and underwear make great, affordable gifts. And its Champion brand has made a resurgence in certain circles as well, with Esquire calling it “one of the coolest brands around — again.”
Veeco Instruments (VECO)
Veeco Instruments is a semiconductor process equipment company. It produces various systems utilized during the manufacturing of semiconductors. VECO stock is up 18.35% year-to-date and it has risen steadily out of its pandemic bottom of below $8.
Q3 revenues increased modestly year-over-year from $109 million to $112.1 in 2020.
Like DouYu, the first stock on this list, Veeco Instruments moved into the black this quarter. CEO William J. Miller had this to say of the achievement:
“We are pleased with our advancing profitability in the quarter which was driven by our ion beam technologies sold into the Data Storage market. Our non-GAAP operating income improved significantly year-on-year, demonstrating the early effectiveness of our transformation. Given our visibility, we expect continued strength in our overall business and feel confident about our future performance,” continued Dr. Miller. “We began to deliver evaluation systems in support of our longer term growth strategy in the semiconductor and compound semiconductor markets and we expect these initiatives to contribute to our growth in 2022 and beyond.”
At a macro level, VECO stock rides on a global semiconductor manufacturing equipment market that is projected to reach $119 billion by 2026, representing CAGR of 8.0%.
PDC Energy (PDCE)
PDC Energy is an exploration company with operations in Texas and Colorado. Corporate HQ is located in Denver. PDCE stock is way up in the past month, and may well eclipse the $20 threshold before year end.
The entirety of the oil industry has had a tumultuous year. Commodity price shocks and pandemic pressures on demand have factored heavily. Investors in PDC may be worried, given environmental concerns which lead investors to believe oil will never make a comeback. Yet, the transition toward green energy may be far less severe than many pundits anticipate. It is clear that oil isn’t isn’t going anywhere soon, and demand should likely see a spike in 2021.
A resumption of normalcy will serve as the impetus for much of that demand spike as oil is still integral to our economy. To that end, the U.S. Energy Information Administration (EIA) predicts that global consumption of petroleum and liquid fuels will average 92.9 million barrels per day for 2020, and increase by 5.9 million barrels per day in 2021.
PDC Energy is at the upstream portion of the supply stream and is subject to all of the many factors that can move oil prices.
Brightcove is a video cloud company which has already doubled in price year-to-date. BCOV stock may well eclipse $20 soon as well based on its current trajectory. The company counts Ford (NYSE:F), Adobe (NASDAQ:ADBE), Johnson & Johnson (NYSE:JNJ), Hubspot (NYSE:HUBS) and Masterclass among customers that utilize its platforms.
Cloud delivery of video is becoming increasingly more important across publishers, sports, and retail and e-commerce, among others. Brightcove is in a strong position as more and more companies seek to monetize video.
The company reported Q3 profits of $31 million on gross margins of 63%. This slightly bested profits of $29.1 million during the same period in 2019.
The company seems to be succeeding at on a key metric — adding premium customers and converting lower revenue customers into higher paying ones. Annualized subscription revenue per premium customer was $89,000 in Q3. That same figure was $84,500 in 2019. The company ended Q3 with 2,267 premium customers and 3,381 total customers.
Non-premium customers provided a much more modest $4,300 in revenue each. The company clearly has an installed revenue base which it must bring up the value ladder. With more and more companies utilizing cloud video, the task is achievable and should lead to price appreciation.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”