While the markets have been strong this year, the bullishness was concentrated in various sectors, such as technology. Investors have essentially shown a big appetite for growth plays. But can this last? Actually, it seems reasonable that there could be a reversal. In other words, the cheap stocks to buy in 2021 may be the best strategy.
Now, it’s true that value has been out-of-favor for quite some time. And this is fairly normal. Hey, who doesn’t want to get the quick gains from a growth stock?
But when markets start to cool down, these types of investments can go in reverse in a very bad way. Just look at what happened during the dot-com bust. The losses were stunning.
If anything, a move to value may be a good way to provide some downside protection. Besides, there are many good quality companies that have low valuations right now.
So, which ones should we consider? Here’s seven names to keep an eye on:
- Credit Suisse Group (NYSE:CS)
- Kinross Gold (NYSE:KGC)
- Bridgewater Bancshares (NASDAQ:BWB)
- Ford (NYSE:F)
- Hewlett Packard Enterprise (NYSE:HPE)
- ADT (NYSE:ADT)
- Interface (NASDAQ:TILE)
Let’s dive in and take a closer look at each one.
Cheap Stocks To Buy in 2021: Credit Suisse Group (CS)
The roots of Credit Suisse Group go back to the 1850s when the company focused on providing funding for Europe’s rail businesses. But this bank would then go on to expand into other categories like insurance, corporate advisory and wealth management — eventually turning into a global financial powerhouse.
But during the past decade, Credit Suisse has been beset by scandal and investigations. The result is that CS stock has gone from $50 to under $15, with the market capitalization now at $33 billion.
Nonetheless, this does look like a value opportunity for longer-term investors as the balance sheet is rock solid. The company has also benefited from the surge in initial public offerings (IPOs) this year.
But Credit Suisse is also making a major push to expand its wealth management platform. In fact, the plan is to devote about two-thirds of its capital to this business.
The strategy looks to be spot-on. There is lots of synergy with the investment banking business, in which insiders need sophisticated planning services. There is also the continued strength in equity assets across the globe.
CS stock is trading at a reasonable valuation as well. Note that the forward price-earnings ratio (P/E) is at only 8X and dividend is at 2.34%.
Kinross Gold (KGC)
2020 was a good year for gold, which has gained about 25% to $1,890 per ounce. But this may not be the end of the bull run. With interest rates a rock-bottom levels and fiscal spending rising across the world, there could be higher inflation.
One way to play this is by buying gold miners, such as Kinross Gold. Because of their relatively fixed cost structure, there can be outsized profits when the price of gold rises.
For example, during the latest quarter, the operating cash flows for Kinross Gold more than doubled to $544.1 million on a year-over-year basis. Even with the challenges with the novel coronavirus pandemic, the company has been able to maintain its production targets and keep costs low.
That said, the growth should continue. For the next three years, the company projects a 20% increase in production. A big help will be acquisitions, such as for the Peak project in Alaska. The company also has a solid balance sheet, with the liquidity at $2.5 billion.
Even though KGC stock ended 2020 up 55% this year, the valuation is still attractive. The forward P/E ratio is 8.45X and there is a decent dividend yield of 1.52%.
Cheap Stocks To Buy in 2021: Bridgewater Bancshares (BWB)
Bridgewater Bancshares is a young bank, having been launched in 2005. The founders wanted to rethink the conventional approaches and provide a more entrepreneurial focus.
The bank operates in the growth areas of Minnesota. And in terms of the service offerings, they are comprehensive, such as with commercial real estate loans, construction lending, tax bridge financing, multifamily financing and cash management. The total assets are about $2.77 billion.
While there are challenges with low interest rates and the impact of the coronavirus pandemic, Bridgewater Bancshares has been able to remain profitable. In the latest quarter, the earnings per share (EPS) came to $7.2 million, or 25 cents a share. The bank also has benefited from strong underwriting standards. Consider that there are only 0.02% nonperforming assets to total assets.
Since late September, BWB stock has rallied — going from $9 to now above $13. Yet, the P/E ratio is still at only 12X or so.
Since March, Ford stock has had a nice ride as the shares have gone from $4.71 to $8.82. But the price is still well off its high of $15 during the past decade. Instead, Wall Street has been more interested in fast-growing operators like Tesla (NASDAQ:TSLA).
So, why should Ford be one of the cheap stocks to buy in 2021? Well, there is still quite a bit of value to this company. Ford has also been making strides with EVs (electric vehicles) and self-driving systems.
Just look at the latest Mustangs and F-150 pickups. They have seen considerable buzz because of their sleek designs, software technology and EV systems.
Of course, Ford has the advantage of a portfolio of other brands that could be rejuvenated. In other words, the next decade could mean a return for growth. This could also mean lots of potential upside for F stock, which still trades at a forward P/E ratio of 8X.
Cheap Stocks To Buy in 2021: Hewlett Packard Enterprise (HPE)
Hewlett Packard Enterprise has a broad set of technologies in its portfolio. They include sophisticated servers, supercomputing systems and tools, storage, and edge systems.
But the company has faced tough competitive forces. There have also been the issues with integrating various acquisitions. The result is that HPE stock has been a long-time laggard.
However, management is taking the right steps to get things back on on track. To this end, there is a rigorous plan to reduce costs and reprioritize the product roadmap.
And it looks like the company is getting results. In the latest quarter, the revenues increased 5% on a sequential basis and there was a return to pre-pandemic levels. Non-GAAP earnings climbed by 16% to 37 cents a share and free cash flows came to $223 million.
While growth was consistent across all segments, the Intelligent Edge business has remained the star performer. This category is expected to see long-term growth because of trends like 5G and the expansion of IoT (Internet-of-Things).
HPE stock is fairly cheap at current levels, with the forward price-to-earnings ratio at 7X. The dividend is also at 4.1%, which is among one of the highest yields in the tech industry.
In early 2018, ADT stock was issued in an IPO (Initial Public Offering) and the price was $14. But the deal has not panned out too well for investors. The ADT stock price is not at $7.83 and the market capitalization is $6.4 billion.
Then again, the security market is highly competitive. Even Amazon (NASDAQ:AMZN) is a player in the category with its Ring.com property. It also does not help that ADT has a large debt load.
Given all this, why should the company be put on the list of the cheap stocks to buy in 2021? The fact is that ADT has some major benefits, such as a well-known, trusted brand; an extensive customer list; and a strong base of recurring revenues.
Something else to note: In August, Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) invested $450 million in the company for a 6.6 percent equity stake. The play is for the lucrative smart home services market. Keep in mind that Alphabet owns Google Nest, which will be the main offering for ADT.
When the deal was announced, ADT stock shot up to over $13. But since then, the gains have fizzled out. But this has meant that the valuation is at cheap levels. The forward P/E ratio is 8.73X.
Interface is a leading flooring company. The focus is primarily on carpet and tile, as well as resilient and rubber flooring. The company has a strong reputation for high-quality and premium offerings.
Now a key to the strategy is the innovation with modular carpet. This has become increasingly important in the commercial market.
True, the coronavirus pandemic has hit the business hard. In the latest quarter, the revenues were down 20% on a year-over-year basis. But going into next year, things should start to improve as the vaccines from Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) get rolled out.
In the meantime, Interface has been focused on reducing its costs. As a result, there was positive cash flows of $65 million in the third quarter. The company also has $378 million in liquidity. But the company has not cut back on its R&D. For example, the company recently announced the launch of the first carbon negative carpet tile.
As for the valuation on TILE stock, it is certainly at reasonable levels. Note that the forward P/E multiple is nearing 11X.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.