There are 208 on the NYSE and 82 on Nasdaq that trade between $5 and $20.
This means of the 313 stocks $20 or under on both exchanges, almost 93% trade between $5 and $20, providing investors with a much larger selection than if you were focused exclusively on penny stocks under $5.
Further, my screening suggests the possibilities are greater on the NYSE than on Nasdaq.
However, for my seven stocks under $20, I’ve found more to my liking amongst Nasdaq stocks than on the NYSE. To make things interesting, I’ll make sure I’ve got seven stocks under $20 from seven different sectors.
- Zynga (NASDAQ:ZNGA)
- Qurate Retail (NASDAQ:QRTEA)
- Clean Energy Fuels (NASDAQ:CLNE)
- Ares Capital (NASDAQ:ARCC)
- Aphria (NASDAQ:APHA)
- Algonquin Power & Utilities (NYSE:AQN)
- Outfront Media (NYSE:OUT)
Stocks Under $20 to Buy Now: Zynga (ZNGA)
I’ll admit that some of the names on my list of stocks under $20 aren’t the usual names I might consider for a gallery of stocks. That said, they’ve all got something going for them that makes their stocks decent value plays in the year ahead.
In the case of Zynga, the last time I wrote about the maker of free-to-play mobile video games was a pros/cons story in November 2013. At the time, I recommended that investors should consider its stock only as a speculative bet. Alternatively, they should buy the First Trust Cloud Computing ETF (NASDAQ:SKYY) because your investment would have been protected by 38 other stocks.
Today, Zynga is no longer part of SKYY. If you bought SKYY on my suggestion, you would have done really well.
As for Zynga, a number of my InvestorPlace colleagues have gotten quite enthusiastic about its chances. Josh Enomoto suggested that ZNGA stock is “an intriguing pick among stocks selling at a discount in the gaming arena.”
Now, I’m not suggesting that Zynga’s in the same league as EA, but the company’s third-quarter saw it report the highest quarterly sales in its history with operating cash flow of $113 million, the best Q3 result in its history and 65% higher than Q3 2019.
Consumer Cyclical: Qurate Retail (QRTEA)
The name might not ring any bells, but Qurate’s seven retail brands probably do. It has QVC, HSN, Zulily, Ballard Designs, Frontgate, Garnet Hill, and Grandin Rose.
QVC and HSN are the world’s largest video commerce platforms. The latest 12 months (LTM) through Sept. 30, 2020, generated $11.3 billion from 15.4 million customers. Zulily and its other four businesses pale in comparison generating $2.6 billion from 7.7 million customers in the latest 12 months.
Over the past year, it’s had a bit of a renaissance. QRTEA stock delivered a total return of 83.6%, considerably higher than most of its internet retail peers.
As it said in its November 2020 presentation, its ability to consistently generate free cash flow (FCF) will enable it to continue to return capital to shareholders. Between 2017 and 2019, it returned more than 70% of its FCF to shareholders through share repurchases. It plans to continue paying out a majority of its FCF in 2021 and beyond.
In the past three years, Qurate’s FCF grew from $718 million in 2018 to $1.77 billion through the end of September. Based on an enterprise value of $11.1 billion, it’s got an FCF yield of 15.9%. I consider anything above 8% to be value territory.
The integration process of merging QVC and HSN after its 2018 combination is primarily completed. It’s managed to find more than $200 million in annual savings with plans to increase that to $400 million by the end of 2022.
That should only help increase its cash flow generation prowess.
Energy: Clean Energy Fuels (CLNE)
Although I don’t know a lot about the company, you say the words “clean energy,” and my ears perk up.
The company got its start in 1988 when T. Boone Pickens jumped on natural gas to save commercial trucks money while providing a cleaner fuel at the same time. Fast forward to today and it has more than 530 natural gas fueling stations in 43 states and Canada.
Interestingly, Clean Energy Fuels is the only fueling provider to offer the trifecta of natural gas: compressed natural gas (CNG), liquified natural gas (LNG), and renewable natural gas (RNG).
If you’ve followed the work Hyliion Holdings (NYSE:HYLN) is doing to develop commercial transportation that’s net-carbon-negative, you know that the startup’s Hypertruck ERX utilizes a fully electric drivetrain whose generator is fueled by natural gas that can deliver more than 1,300 miles per fueling.
As Hyliion’s investor site states, “renewable natural gas offers commercial fleets with an attractive option to achieve carbon negative status.”
25%-owned by Total (NYSE:TOT), Clean Energy Fuels can be a part of the solution to move beyond traditional fossil fuels.
More profitable than it’s ever been, the company’s Redeem renewable natural gas continues to gain ground with commercial fleets. Redeem gasoline gallon equivalents delivered grew from 78.5 million in 2017 to 143.3 million in 2019.
That’s good news for shareholders and the world.
Financial: Ares Capital (ARCC)
To look at Ares Capital’s long-term chart, investors might be tempted to walk away. After all, its share price since its October 2004 initial public offering (IPO) has primarily traded in a narrow range between $15 and $20. Only twice has it traded below $10: March 2009 and March 2020.
Just because you missed the 2020 correction doesn’t mean you should ignore the income opportunity while you wait for the next correction to buy more.
Ares Capital is what’s known as a business development company (BDC). It provides debt and non-control equity to middle-market businesses with earnings before interest, taxes, depreciation and amortization (EBITDA) between $10 million and $250 million.
Because BDCs are regulated investment companies (RICs), they must payout at least 90% of their profits to shareholders. They do not pay taxes on their profits. Shareholders pay taxes based on ordinary income tax rates.
This is why Ares Capital currently yields 9%. And if you hold ARCC in a Roth IRA until you’re 59.5, you can grow that 9% tax-free for as long as you want and remove as much as you want also tax-free.
Ares Capital’s portfolio is $14.4 billion, with the largest investment accounting for just 3% of the portfolio providing shareholders with excellent diversification.
I recommend that you closely examine the company’s presentations and materials before jumping to ARCC. While it’s performed nicely over the years, it is a different beast from your typical financial sector investment.
Healthcare: Aphria (APHA)
One of Canada’s biggest players in cannabis has gotten off to a hot start in 2021. Up 80.6% year-to-date through Feb. 1, the company delivered strong Q2 2021 results in mid-January that included a 33% increase in sales to 160.5 million CAD ($125.5 million) and a 563% increase in EBITDA to 12.6 million CAD ($9.9 million).
It was the company’s seventh consecutive quarter of higher sales, a quarter in which the average sale price was 4.29 CAD ($3.35) per gram, up 3.4% from the previous quarter.
Three things make Aphria an interesting investment:
2) The company’s acquisition of Sweetwater Brewing in November 2020 gave it access to the U.S. market through the craft brewer’s existing infrastructure. It also makes it more attractive for possible strategic investments by consumer-packaged goods companies.
3) Chief Executive Officer Irwin Simon never seems to be at a loss for words when discussing Aphria’s future. His experience getting brands on shelves is a given.
Once the merger between itself and Tilray is complete, Aphria will own 20% of the Canadian market, 700 basis points higher than Canopy Growth (NASDAQ:CGC).
I like its chances in 2021 and beyond.
Utilities: Algonquin Power & Utilities (AQN)
The second Canadian-based company on my list of stocks under $20, Algonquin, is one of the better run utilities in North America.
“The company’s largest purchase to date closed in 2017, with the former Empire District Electric adding 218,000 electricity and natural gas utility customers in four states,” Conrad stated on Dec. 17.
“The most recent utilities to join the fold are Ascendant Group in Bermuda and Chilean water utility Essal, the company’s 26th and 27th regulated acquisitions, respectively. And the most significant deal pending is for American Water Works’ (NYSE: AWK) New York water utility, with regulatory approval expected in early 2021.”
Trading near its 52-week high, you’ll want to be patient with Algonquin. Paying a 3% dividend, you’ll be rewarded for your patience until it resumes its climb into the $20s.
Real Estate: Outfront Media (OUT)
Outfront is a real estate investment trust (REIT) that makes money by renting out its billboards to advertisers who pay it rental income for the right to advertise on those billboards, digital signs, and transit shelters. They typically lease the ground upon which its billboard structures are located for anywhere from a few months to several years.
Several years ago, I got to know one of the senior people at Outfront Media’s Canadian operations in my capacity as a business columnist for the neighborhood paper where I lived in Toronto. I can’t remember his name for the life of me, but he was a very reasonable person having a bit of a tussle with some people running the local arena.
Outfront was looking to put up a digital sign in the same spot where one of its billboards was erected in the arena parking lot. As part of the deal, it would share revenue with the arena. It seemed like a no-brainer for an organization in need of money.
Well, the deal finally got done, and nobody’s life has been shattered because there’s a digital sign in place of a static billboard.
As the tussle demonstrates, it’s not always easy for Outfront to get acceptance from communities where it’s looking to generate revenue from its billboard structures. This means it sometimes has to spend a lot of time negotiating with the city government, community leaders, etc.
It’s not easy work.
In the past year, Outfront’s stock has fallen by almost 37%. That’s put a dent in its long-term returns. Outfront went public in March 2014 at $28. As I write this, it’s trading down 33% from its IPO price.
Covid-19 has been brutal on its revenues and operating profits, which is why its share price is well below its 52-week high of $31.20.
When life gets back to normal, Outfront’s share price will return to $30 in no time, especially if it resumes paying its dividend.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.