To gain an advantage in the markets, you have to be contrarian. That might mean looking into undervalued stocks to buy under $10, as these are often ignored by market participants leading to significant valuation dislocations.
Typically, the markets assume cheap stocks to buy under $10 have a negative outlook that could be impacted by declining business fundamentals, huge liability claims or face regulatory hurdles. As a result, they attract limited institutional interest. Moreover, they have lower analyst coverage than their high-priced peers.
In some cases, institutional investors might avoid these stocks for various reasons. For instance, their mandates might restrict them from buying stocks below $10. Also, these stocks might be thinly traded small or mid-caps that keep away institutional investors.
As an individual investor, you can profit from these market limitations and discover undervalued gems. These stocks under $10 to buy are worth a look after a turbulent first half. Also, with small caps trading at a discount to the overall market, these picks offer relative outperformance from now on.
JetBlue Airways (JBLU)
Over the past two years, JetBlue Airways (NASDAQ:JBLU) has been in the headlines continuously. First, it was the contentious bidding war with Frontier Group Holdings (NASDAQ:ULCC) for Spirit Airlines (NYSE:SAVE). To fend off Frontier, JetBlue ended up proposing a $3.8 billion buyout higher than the original $3.6 billion all-cash bid.
JetBlue hoped to close the deal in the first half of 2024, but it has encountered several obstacles. First, the Justice Department sued in March to block the deal on antitrust grounds. And in April, California and three other states joined the lawsuit to prevent the acquisition.
But that wasn’t the end of the bad news for JetBlue. The court recently ordered the company to unwind its Northeast Alliance with American Airlines (NASDAQ:AAL). According to Reuters reporting, the judge argued that the alliance meant higher prices and had to be unwound.
The uncertainty on the regulatory front has been an overhang on the stock. It has overshadowed the excellent fundamental results that JetBlue has been reporting. That’s why it’s one of the best stocks to buy under $10.
In 2023, fundamental results have been impressive, supported by the booming travel demand. Q1 2023 earnings showed momentum, with capacity increasing 9% YOY. Meanwhile, operating revenue was up 34.1% YOY to $2.3 billion.
The business momentum is carrying on. “Demand trends remain robust into the second quarter, with strong demand for leisure and visiting friends-and-relatives (VFR) travel, particularly during peak periods,” said JetBlue’s President and Chief Operating Officer, Joanna Geraghty.
Due to the strong outlook, management issued a high single-digit to low double digits revenue growth forecast for FY2023. Based on the estimate, JetBlue deserves a place on your August 2023 cheap stocks list. Management expects $0.70 – $1.00 in adjusted EPS for FY2023, which translates to a forward price-to-earnings of 10.
Under Armour (UAA, UA)
Once considered a formidable competitor to Nike (NYSE:NKE), Under Armour (NYSE:UAA, NYSE:UA) has slowly lost ground. However, a successful turnaround could revive its fortunes. And since the valuation is cheap, it’s one of the stocks to buy under $10 in the consumer discretionary sector.
Although the firm has reported disappointing results over the past year, it has substantial brand value. Still, it is considered one of the top athleisure brands. Moreover, it still has the backing of top brand ambassadors such as Steph Curry.
After a poor fundamental performance in 2022, the board has made strategic changes to initiate a turnaround. In December 2022, they appointed Stephanie Linnartz as President and CEO. Her experience in digital and customer experience will aid the company in building out its e-commerce business.
Also, in March, the company extended its partnership with Curry. This partnership will fuel business, expand global opportunities, and capture market share. Under the new long-term deal, they will market the brand in basketball, golf, youth, sport style, and women.
Under Armour’s problems are not unique to the company. Most apparel companies have suffered due to excessive inventories in the channel. But these excesses will likely resolve by the end of 2023, establishing a base for revenue growth.
For the fiscal year ending March 31, 2024, management forecasts diluted EPS to be between $0.47 and $0.51. This equates to a forward price-to-earnings (P/E) of 16. Considering this valuation is a discount to the market, it is one of the bargain stocks to buy under $10.
Heritage Commerce (HTBK)
This Northern California bank has had a steep correction since the Silicon Valley Bank turmoil. The stock was trading above $14 in October 2022 and is now below 10. Although the stock has recovered from the lows around $7 set in May, it still is a top stock under $10 to buy.
Heritage Commerce (NASDAQ:HTBK) has established a reputable banking franchise in North California. Currently, it has 17 branch locations in the region. It offers a full range of banking services to small to medium-sized businesses, professional organizations, and high-net-worth individuals.
Taking a longer-term view, its balance sheet and operating metrics have been growing. Total deposits have increased from $2.6 billion in 2018 to $4.4 billion in Q1 2023. And despite the banking turmoil in the first quarter, total deposits increased by $54.9 million, a 1% quarter-over-quarter increase.
While commercial real estate portfolios have been a concern for regional banks, Heritage’s portfolio is less risky. According to its latest investor presentation, its CRE loans totaled $1.687 billion as of March 31. It represents 51% of the total loan portfolio.
Furthermore, 90% of its CRE portfolio has personal guarantees and is less risky. And the average vacancy rate for its San Francisco CRE loans was 5.8% indicating these properties are unlikely to default.
Additionally, the bank has a robust capital and liquidity position to navigate the uncertain future. Besides, as of March 31, its total capital ratio under Basel III was 15.3%. Finally, in terms of valuation, HTBK stock is cheap at a price-to-book of 0.91.
Looking forward, Heritage is positioned for growth. Its presence in the San Francisco Bay Area and its diversified specialty business units enable it to capitalize on the high-income households in the region’s vibrant economy.
On the date of publication, Charles Munyi did not hold (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.
