Good things sometimes come in small packages. These seven cheap stocks under $20 all have the potential to double soon. However, for that to happen, the economy has to cooperate. So, inflation must go, or at the very least, moderate a little.
To select the seven names on my list, I gathered a diversified group of stocks that are down on their luck, but not out of the game entirely. Further, they’re covered by at least five analysts, are a part of the S&P 1500, have a projected price/earnings-to-growth (PEG) ratio over the next 12 months of less than 2, and generate annual free cash flow of at least $100 million.
My screening criteria produced 23 names. These seven are the stocks I think can deliver for investors over the remainder of 2022:
|SSP||The E.W. Scripps Company||$15.26|
|AEO||American Eagle Outfitters, Inc.||$12.19|
|KAR||KAR Auction Services, Inc.||$16.73|
|VIAV||Viavi Solutions Inc.||$14.82|
|MAC||The Macerich Company||$11.12|
Cheap Stocks Under $20: E.W. Scripps (SSP)
E.W. Scripps (NASDAQ:SSP) used to be one of America’s largest newspaper businesses. However, in 2014, Scripps spun off its newspaper business into a separate company and merged its broadcast assets with Milwaukee-based Journal Communications. Today, it is the fourth-largest local television broadcaster in America, with 61 TV stations in 41 markets.
In May, Scripps launched the Scripps Journalism Journey Initiative, which seeks to transition print journalists into TV broadcasting, putting them to work in its local and national newsrooms. Part of the program includes training in video-based storytelling. It begins accepting applications this summer.
“Local newspapers in particular are losing their relevance and their reach,” Scripps Chief Executive Officer (CEO) Adam Symson told Poynter in a recent interview. “And as a result of all of the downsizing, our industry is losing fine journalists to other careers.”
It seems like a win/win solution to me.
SSP currently trades at $15.28 with a price-to-sales (P/S) ratio of 0.62x, one-third less than its five-year average. Based on trailing 12-month (TTM) free cash flow (FCF) of $155 million, it has an FCF yield of 11.7%. Anything above 8% is value territory. SSP is down 24% year-to-date (YTD).
On May 13, Coty (NYSE:COTY) held a fireside chat for analysts. The presentation noted that cosmetics accounted for 65% of its business in 2021. Body care was the next highest at 18%, followed by mass-market fragrances at 15% and mass-market skincare at 2%.
Several of its brands have a leading market share in various global markets. For example, its Sally Hanson nail polish brand is number one in the U.S., its Rimmel brand is number one in the U.K., and its Risque nail brand is tops in Brazil.
The company has struggled mightily in recent years. To remedy this, it hired former L’Oreal executive Sue Nabi. The CEO continues to transform its business. Despite its stock being down almost 25.6% YTD, Coty generates more than $628 million in TTM FCF. That’s good for an FCF yield of 10.6%.
Cheap Stocks Under $20: American Eagle (AEO)
American Eagle (NYSE:AEO) CEO Jay Schottenstein is a billionaire. He’s also one of American Eagle’s largest shareholders, holding 7.2% of its stock. American Eagle currently operates more than 1,000 stores in the U.S., Canada, and overseas. Its online business ships to 81 countries.
Its Aerie brand continues to drive growth. In the first quarter (Q1) of 2022, it grew sales by 8.1%, offset by a 5.7% decline in American Eagle sales. It is also growing its Offline by Aerie brand, opening standalone locations and side-by-side stores next to Aerie locations.
In November 2021, American Eagle acquired Quiet Platforms to fix its supply chain while doing the same for other retailers. It recently signed up Fanatics, the sports e-commerce company that plans to be a $100-billion business over the next 10 years. Fanatics joins a retail network of more than 50 companies using Quiet Platforms’ last-mile delivery options.
While Quiet Platforms isn’t a separate segment, it could be in the future. Trading at 0.51x sales, I’d keep an eye on this one. Morgan Stanley (NYSE:MS) feels it could fall further. If you can get it under $10, load up the truck because it has only traded under $10 on three occasions over the past 20 years.
The company recently appointed Dr. James Swift as chief operating officer and Dr. Curtis Pickert as chief physician executive. Both doctors have been with the company for more than a decade.
At the end of April, it reported its Q1 2022 results. The company’s net revenue increased 7.9% to $482.2 million, while its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $51 million in the quarter, 11.4% higher than a year earlier. Mednax’s same-unit revenue growth in the quarter was 1.3%. Acquisitions also assisted revenue growth.
Mednax currently trades at 0.85x sales, lower than its five-year average of 0.96. Of the 10 analysts that cover its stock, two rate it a “buy,” six give it a “hold,” one has it at “underweight,” and another rate it as a “sell.” The average target price is $21.75, providing 14% upside.
Cheap Stocks Under $20: KAR Auction Services (KAR)
It operates in two segments: ADESA, the company’s auction services in the U.K., Canada, and Europe, as well as its digital platforms, including Backlot Cars and CARWAVE. It also provides short-term inventory-secured financing to independent used vehicle dealers through its Automotive Finance Corporation subsidiary.
On May 10, the company completed the sale of its ADESA U.S. physical auction business, which includes 56 ADESA U.S. vehicle logistics centers. It sold the business to Carvana (NYSE:CVNA) for $2.2 billion. In the first quarter ended Mar. 31, its ADESA U.S. business sold 212,000 used cars.
“We believe the future is digital, and the channel shift towards digital across our industry is gaining momentum. KAR is now better positioned than ever to lead this evolution and capture the broad opportunities ahead,” said Peter Kelly, CEO of KAR Global.
Over the past five years, KAR stock has declined by 1.4%. For the most part, it has traded between $10 and $20. The company’s digital-first transformation should help strengthen its margins.
Viavi Solutions (VIAV)
In August 2015, JDS Uniphase spun off its Communications and Commercial Optical Product business segment. That business was named Lumentum Holdings (NASDAQ:LITE) and still trades on Nasdaq. The company’s Network Enablement, Service Enablement, and Optical Security and Performance Products businesses were renamed Viavi Solutions (NASDAQ:VIAV).
Viavi provides network test, monitoring, and assurance solutions to cable and wireless service providers, network equipment manufacturers, government and military agencies, and other large enterprises. It also produces optical coatings used in currency production.
The company’s Q3 2022 report released in early May showed 4% growth in revenue to $315.5 million, while non-GAAP earnings per share increased 22.2% to 22 cents. As a result, it expects fiscal 2022 to be a record year for sales and profits.
While VIAV stock isn’t cheap at 2.67x sales, its P/S multiple is lower than it has been since 2018. Down 15.8% YTD, it hasn’t traded this low since December 2020.
Cheap Stocks Under $20: The Macerich Company (MAC)
The Macerich Company (NYSE:MAC) is a California-based real estate investment trust (REIT) that owns, operates, and develops regional shopping malls. The REIT’s current portfolio includes 48 million square feet of real estate at 44 regional malls in the West Coast, Arizona, metropolitan New York and Washington D.C.
The Aussie apparel brand Cotton On recently announced that it would open 17 stores at Macerich malls by 2023. Cotton On has more than 1,400 stores in 22 countries.
In the latest quarter ended March 31, the REIT reported funds from operations (FFO) of $112.4 million, or 50 cents per share, 12.8% higher than a year earlier. Other highlights include a 280-basis point increase in its occupancy rate to 91.3% and a record high sales per square foot for tenant spaces less than 10,000 square feet of $843. Additionally, Cotton On opened six stores during the quarter.
For all of fiscal 2022, Macerich expects FFO of $2.02 per share at the midpoint of its guidance. That’s up from its February guidance of $1.95.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.