It’s a confusing time to be in the market. With Wall Street sending off mixed signals near the peak of its valuation, many investors are fearful of a crash. From these levels, the volatility would be quite devastating, adding more to the pessimism. Still, if we do suffer from a severe correction, that would bring more cheap stocks to buy on the table.
But if we don’t? Despite the dramatic spike in market valuation following the initial devastation of the novel coronavirus pandemic, you might be surprised to learn that there are still plenty of cheap stocks to buy. And I’m not referring to fly-by-night garbage that you can find on the over-the-counter exchange. Rather, I’m talking about companies with serious potential. They just happened to fall under rough circumstances.
Better yet, by cheap stocks, I mean this on an elemental sense. You’re not going to find me pull up some esoteric argument about cheap relative to forward-looking earnings projections. No, each of these discount-bin names are priced under $10.
To be fair, when equity units are this inexpensive, there’s usually a reason for it. And while the Covid-19 crisis is a legitimate reason, you should be leery about companies that use the pandemic as a crutch. Still, as the economy starts to rebound from this awful mess, the biggest beneficiaries could be cheap stocks. Mathematically, they have more room to run.
If you have the stomach for speculation, here are seven cheap stocks that could bounce back from the troubles.
- Sirius XM (NASDAQ:SIRI)
- Casper Sleep (NYSE:CSPR)
- Drive Shack (NYSE:DS)
- Allied Esports Entertainment (NASDAQ:AESE)
- AMMO, Inc. (NASDAQ:POWW)
- Coty (NYSE:COTY)
- MindMed (NASDAQ:MNMD)
A final tip before we get into it. Since cheap stocks tend to move much more robustly than lower-priced fare, you don’t need to spend gobs of money to realize some incredible gains. Indeed, you’re better off just using “dumb money” for these ideas as the wild trading cuts both ways.
Cheap Stocks to Buy: Sirius XM (SIRI)
Thanks to its vast library of content, Sirius XM represented a fan favorite for many worker bees prior to the pandemic. According to a Washington Post report, the average American lost nearly an hour a week to their commutes. In 2018, this translated to workers spending 225 hours or over nine full calendar days commuting to their cubicles.
Nothing short of a global rethink on work could change that narrative. And so, in the world before the novel coronavirus, we turned to Sirius XM.
But following the public health crisis, the narrative for SIRI stock became incredibly complicated. On one hand, the work-from-home initiative isn’t exactly the most conducive for Sirius due to multiple competing entertainment platforms. But on the other, the gradual return to the office could make SIRI one of the best cheap stocks to buy.
To be sure, the rest of the market doesn’t really believe in this narrative, with SIRI down 3% for the year. Nevertheless, traffic across all modes has picked up significantly since the pandemic lows. This suggests that the physical employment paradigm still has legs to run, boding well for Sirius XM.
Casper Sleep (CSPR)
One of the cheap stocks under $10 that barely fits the description (as I write this, shares are $9.59), Casper Sleep is also a victim of bad timing. The company, which specializes in mattresses and related products to help customers get a better night’s rest, launched its initial public offering in early February 2020.
Right when everybody in the know was jettisoning their investment holdings, Casper Sleep went against the grain, hoping to raise capital for its business venture. It went about as well as you might expect. Nevertheless, CSPR stock made an impressive recovery from its pandemic low point of $3.18. And on a year-to-date basis, shares are up nearly 52%, making it one of the best performing cheap stocks.
Despite the momentum, speculators may still be able to accrue market rewards while CSPR is technically in single-digit territory. For one thing, Casper’s equity unit had an initial offering price of $12, which still makes it a discount. Second, the company could continue to benefit from the red-hot housing market. After all, these buyers have got to sleep on something.
Cheap Stocks to Buy: Drive Shack (DS)
When Covid-19 transitioned from a distant crisis to an everyday reality, the industries that suffered some of the biggest declines were anything related to bringing people together. Unfortunately, this included Drive Shack, an entertainment facility specializing in a golfing range, other amusement platforms and refreshments. During the pre-pandemic, era, Drive Shack was a fun place for worker bees to let off some steam.
Following the rude intrusion of the SARS-CoV-2 virus, however, Drive Shack became a no-go zone. With multiple state governments imposing lockdown measures, there wasn’t much the company could do to mitigate the impact. Still, Covid wasn’t a complete disaster for DS stock because the underlying company’s exposure to southeastern states, which tend to be more conservative.
As a result, 2020 revenue loss for Drive Shack wasn’t terrible. At $220 million, this was down 19% from the $272 million in top-line sales generated in 2019. Moving forward, pent-up demand could make DS one of the more compelling cheap stocks to buy.
Of course, there’s plenty of risk here. At under $3, the law of small numbers could easily make DS stock a big winner or catastrophic loser.
Allied Esports Entertainment (AESE)
Before facemasks and social distancing were a thing, esports helped make competition much more sanitary. Instead of sweaty contact between athletes, the core of the action took place on screen.
Of course, you lose much of the experiential aura when playing video games. That’s where Allied Esports Entertainment came in to bridge the gap between esports and “real” sports. By connecting players, streamers and fans via live arenas and mobile gaming trucks, Allied brought the social experience to the video gaming world, which was often engaged in private silos across the world.
It was a brilliant idea until Covid-19 decided to ruin everything. Not surprisingly, Allied Esports produced lackluster results in 2020 amid the crackdown on non-essential activities. But that might not be the last word on AESE stock.
No question exists that AESE is one of the riskiest cheap stocks under $10. As with Drive Shack, Allied’s equity unit is priced under $3, making the law of small numbers a double-edged sword. In spite of this challenge, AESE can move higher as state governments gradually loosen their Covid restrictions.
Plus, Allied’s core audience caters young, which is the least-affected demographic for the coronavirus. Therefore, if you’ve got the stomach for potential volatility, make sure to put AESE on your radar.
Cheap Stocks to Buy: AMMO, Inc. (POWW)
The company which in my opinion owns the greatest ticker symbol ever, AMMO, Inc. knows how to push buttons. But thanks to the unprecedented demand for firearms and ammunition, AMMO now knows how to generate profits. According to a press release, the company disclosed continued sales growth in its fiscal year 2022, ultimately leading to its first profitable quarter in corporate history.
Naturally, the question is, can this momentum sustain for the rest of the year and beyond? Although fears of the pandemic and social unrest fueled gun sales last year, some evidence indicates that most Americans have adjusted to the new normal. Therefore, it seems buying POWW stock now may result in bag-holding.
Truth is, whenever you’re dealing with cheap stocks, bag-holding will always be a risk. Still, AMMO benefits from political catalysts that could reasonably provide traders with profits in POWW stock this year.
Mainly, I say this because the Democrats have a small window of opportunity to push for comprehensive gun control. Prior threats of such legislation resulted in panic purchasing of firearms, which directly tie into ammunition sales.
Just before the pandemic stormed into the U.S., global beauty brand Coty — which specializes in cosmetics, skin, fragrance and hair products — was working to overcome years of fading interest for its equity unit. And it seemed that momentum was turning conspicuously positive for COTY stock. Then, the crisis hit, causing shares to tumble into the weeds.
In fact, it wasn’t until late last year that Coty demonstrated signs of life, likely thanks to the holiday season. Aside from that, it was a dour year for COTY stock. With millions of Americans stuck indoors, there was no reason to glam up. As long as your coworkers could see your face during teleconference meetings, the rest of you didn’t matter. Therefore, revenue declined sharply in the second quarter of 2020.
But now, it’s possible that COTY is on the mend. One major source of encouragement is the April retail sales report. Revenue for the health and personal care industries has been picking up strongly, which suggests that young people are eager to get out and about — perhaps with the intention of meeting that special someone.
If so, COTY could translate as one of the most intriguing cheap stocks to buy. This is definitely a nuanced play to watch closely.
Cheap Stocks to Buy: MindMed (MNMD)
One of my personal favorite cheap stocks to buy, MindMed takes alternative therapies to another level. Specializing in psychedelic medicines, the business initially sounds illicit. However, this tightly controlled therapeutic market gives it significant advantages over the legal cannabis sector, mainly because the regulatory environment imposes a high barrier to entry.
Beyond that, MindMed has been generating company-specific news that places it well above the competition. As our own William White reported, MindMed is “on target to submit its New Drug Application for Project Lucy,” an LSD-based experiential therapy with generalized anxiety disorder as its initial indication, to the Food and Drug Administration.
Down the line, this has strong implications for psychedelics as legitimate therapies for various conditions and disorders. As well, the U.S. and many other countries suffer from a mental health crisis. Potentially, MindMed could lead the charge in this critical field, thereby boosting the profile of MNMD stock.
Finally, the Covid-19 crisis has been a rough one for millions of Americans. It’s conceivable that mental health issues will become even more pressing in the years ahead, making MNMD among the most relevant cheap stocks to buy.
On the date of publication, Josh Enomoto held a LONG position in MNMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.