While listening to Federal Reserve Chairman Jerome Powell’s press conference on June 9, I found myself agreeing with two main points that Powell made. Specifically, I believe that the U.S. can avoid a significant economic contraction, and I think that inflation will drop meaningfully in the coming months without the Fed having to raise interest rates to levels that will put the economy into a tailspin. Consequently, I believe that many stocks under $20 are very good buys for long-term investors at this point.
Powell said that a “soft landing,” with much lower inflation and positive economic growth, can still occur. There are multiple deflationary trends in the economy, including the decline of cryptocurrencies, the return of many people to work, the easing of China’s lockdowns and the recent drop of oil prices. If, as one expert believes, the Russia-Ukraine War will end in the fall, then oil and food prices are likely to sink at that point. Meanwhile, as I explained in a recent column, the exceptionally strong labor market and the expansive savings of many consumers will probably prevent a recession.
The main reason why many, if not most, stocks under $20 have fallen a great deal is that many investors expect the Fed’s interest rate hikes to trigger a ruinous recession. Yet Powell said that he does not want to trigger a recession, and I believe that he is sincere about that. And with inflation set to drop, I do not think that he will have to do so.
Here are seven stocks under $20 that investors can buy to take advantage of the disparity between the market’s fears and likely future events.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) is becoming one of the world’s leading manufacturers of “green hydrogen,” i.e., hydrogen made with electricity derived from clean, renewable energy. It’s also starting to sell electrolyzers that are used to make green hydrogen.
As I’ve written before, some of the world’s largest governments, including those of the U.S., E.U., South Korea and Australia are fervently embracing hydrogen. Meanwhile, major companies are starting to embrace the fuel. For example, Walmart (NYSE:WMT) made a deal to buy green hydrogen from Plug Power. Likewise, South Korean conglomerate SK, automaker Renault and giant European airplane maker Airbus (OTCMKTS:EADSY) are all partnering with Plug Power on green hydrogen projects. As I explained in a previous column, through its partnership with Airbus, Plug Power could ultimately become a major supplier of green hydrogen for use in many airplanes.
Importantly, Plug Power expects its margins from green hydrogen to meaningfully expand in the coming quarters and years. With green hydrogen likely to keep getting cheaper and concerns about climate change unlikely to disappear in our lifetimes, the futures of green hydrogen and PLUG stock are very bright.
American Superconductor (AMSC)
On American Superconductor’s (NASDAQ:AMSC) fiscal fourth-quarter earnings call, held on June 2, CEO Daniel McGahn expressed optimism about the company’s ability to sell more products to the U.S. Navy, the navies of allied nations and utilities.
American Superconductor has already delivered a mine-detection system to the U.S. Navy for one ship and expects the navy and other navies to order significantly more of that product. Meanwhile, the company’s first REG system, which makes grids much more resilient, recently became operational for a utility called ComEd, owned by a large company called Exelon (NASDAQ:EXC), in Chicago. McGahn indicated that multiple other utilities are interested in using American Superconductor’s REG system going forward. As utilities adopt REG, the company will be able to sell them other systems, McGahn said.
Speaking of other systems, demand for the company’s “power correction” products, which enable companies and utilities to stabilize their power flow, is increasing rapidly. As electricity enables more functions and renewable energy sources are utilized more extensively, these products are becoming more valuable. In addition to utilities, semiconductor makers and mining companies are among the largest users of American Superconductor’s power-correction products.
The company combines utilities, the Navy and its power correction products into one business category called Grid. In American Superconductor’s last fiscal year, its Grid revenue jumped over 40% to $25.7 million, out of its total revenue of $28.3 million. Grid’s revenue growth looks poised to greatly accelerate.
As I noted in a previous column, “Stem’s AI platform, Athena, increases the efficiency of energy storage systems that work in tandem with renewable energy ‘by automatically switching between battery power, onsite generation and grid power.'”
Like American Superconductor, Stem (NYSE:STEM) is very well-positioned to benefit from the transition to renewable energy and electrification. Stem is already providing evidence that it is capitalizing on that capability, as its revenue soared a very impressive 166% in Q1 to $41 million. Its sales came in nearly 30% above the top of its Q1 sales guidance range, while its backlog jumped 156% YOY to a substantial $565 million.
In December 2021, Stem announced that it had bought AlsoEnergy. According to Stem, AlsoEnergy sells “market-leading solar asset performance monitoring and control software.” Stem added that it would “offer its smart energy storage solutions to AlsoEnergy’s existing front-of-meter and commercial & industrial customer.” AlsoEnergy has “32.5 gigawatts (GW) of solar assets under management (AUM) across more than 50 countries,” Stem reported.
By selling Stem’s products to AlsoEnergy’s customers and AlsoEnergy’s products to Stem’s customers, Stem should significantly accelerate its already explosive revenue growth and move much closer to profitability.
Stem’s forward price-sales revenue estimate, based on analysts’ average 2023 sales estimate, is below two.
Like Stem, PubMatic (NASDAQ:PUBM) is generating explosive growth and has a low price-sales ratio. Unlike Stem, PubMatic is profitable and is not in the energy sector.
Instead, PubMatic enables “Internet content creators and advertisers worldwide” to automatically generate revenue from ads. The company is highly leveraged to the very rapidly growing “online video and connected TV” segments, as they accounted for 67% of its sales in Q1. Despite investors’ worries about slowing digital ad spending, PubMatic’s revenue from those sources jumped 41% YOY, while its overall revenue climbed 25% YOY.
On the profitability front, PubMatic generated $19.3 million of cash flow from operations last quarte, up from $12.7 million during the same period a year earlier. And the company’s stock-based compensation increased by less than $2 million YOY and came in at just slightly over 25% of its net cash provided by operating activities.
PUBM stock is changing hands for less than three times analysts’ average 2023 revenue estimate for the company.
Arrival (NASDAQ:ARVL) continues to accumulate impressive achievements. It recently announced a new partnership, noting that it’s teaming up with Enel x, a subsidiary of the Enel Group. The latter company’s Americas unit alone generated operating income of $12.19 billion in 2020.
Under the deal, Enel will “test (Arrival’s) zero-emission battery electric bus in Italy, and the companies will seek “to foster the growth of electrified public transport globally through increasingly high-performance and competitive solutions.” Arrival indicated that, assuming the Arrival Bus passes Enel’s tests, the latter company will look to market the EV around the world.
Meanwhile, last month, the E.U. approved the Arrival Bus, and on June 17, the company announced that “the Arrival Van is racking up the mileage on public roads in Oxfordshire UK.”
Arrival has expansive partnerships with UPS (NYSE:UPS) and Uber (NYSE:UBER). Despite all of these positive catalysts, the market capitalization of ARVL stock is below $900 million.
Aurora Innovations (AUR)
Speaking of companies with impressive partnerships, Aurora Innovations (NASDAQ:AUR) is in partnerships with two true giants: FedEx (NYSE:FDX) and Uber. Moreover, Amazon (NASDAQ:AMZN) acquired a 5.2% stake in Aurora, indicating that the e-commerce giant intends to partner closely with Aurora in the not-too-distant future.
In September 2021, Aurora began teaming up with FedEx to transport freight using autonomous trucks between Dallas and Houston. The trucks, however, have “safety drivers on board.” But encouragingly, a second route was added in May, indicating that the pilot is going very well.
Indeed, Aurora reported in May that its deliveries had been “100% on time,” while the partners had “completed 60,000 miles with zero safety incidents.”
In December 2021, Aurora announced that it was partnering with Uber Freight on a “commercial pilot with Uber Freight to move freight in Texas and to explore integrating access to Uber Freight’s network within [Aurora’s] trucking product suite.” Uber Freight is “a transformative logistics platform that connects shippers with one of the world’s largest digitally-enabled carrier networks.” The deal will enable Aurora’s customers to use all of Uber Freight’s tools.
American Airlines (AAL)
Like most of its peers, American Airlines (NASDAQ:AAL) has come roaring back amid greatly reduced fears of the coronavirus. The latter trend, in turn, has produced huge increases in travel amid pent-up demand for “experiences” and trips.
On June 13, Bank of America even reported that the demand for international airline tickets had exceeded the amount seen in 2019.
And on June 3, American Airlines raised its Q2 sales growth guidance to 11%-12%, up from 6% to 8% previously. American also reported record March sales, and that month was the first in which the company’s sales exceeded 2019 levels.
“Revenue from small- to medium-size businesses and customers traveling for a mix of business and leisure also was said to remain very strong and is approaching a full recovery,” Seeking Alpha reported.
And American reported that it “was profitable excluding net special items in March and expects to be profitable in the second quarter based on the current demand trends and fuel price forecast.” Finally, analysts on average expect the airlines’ 2023 EPS to come in at $2.18, giving AAL stock a forward price-to-earnings ratio of just 6x.
Airlines in general, and American Airlines in particular, have figured out how to generate large profits, making AAL stock an excellent, long-term investment.
On the date of publication, Larry Ramer owned shares of PLUG , AMSC, AUR, ARVL, STEM and PUBM.