Buy low, sell high. That investing maxim is ingrained in us almost as soon as we start investing. It’s the way to maximize profits. Yet you still have to use judgment. Cheap stocks are often cheap for a reason. There may be something wrong with the business that caused the market to sell them off and trade at single-digit prices. But often doesn’t mean always. Sometimes the market gets it wrong. It mistakes a temporary problem for a fatal flaw.
During the housing market’s subprime mortgage crisis, Citigroup (NYSE:C) stock plunged below $1. Savvy investors saw that as an opportunity. David Tepper of Appaloosa Management bought 47 million shares of Citi in late 2008 when the stock was trading between $9 and $3 a share. He ultimately reaped massive profits from the bet.
There is nothing magical about a stock trading at $10 a share other than it’s a psychological threshold for many investors. But you must do more due diligence than simply look at a stock’s price. Below are three under $10 high-potential stocks that are cheap in the best sense of the word. Given enough time, they might just help turn you into a millionaire.
Amcor (AMCR)
You probably use Amcor (NASDAQ:AMCR) products every day in your house but don’t even realize it. It is one of the world’s leading food and beverage packagers with product lines reaching into pharmaceuticals, personal care products, and medical devices.
Like so many companies, Amcor was hit hard by inflation’s impact that dampened consumer spending. With higher prices subsiding across many sectors and the packaging stock initiating an aggressive cost-cutting regime last year, Amcor is better positioned for future growth. The picture is probably not going to improve appreciably in the next few months. But beginning in the back half of the year, the packager expects to gain traction.
Make no mistake, this is not a high-growth stock no matter its price. But at nearly $9.50 per share, Amcor is trading at 12 times next year’s earnings. That’s a fraction of its long-term earnings growth expectations, and just 15 times the free cash flow (FCF) it produces. It uses that FCF to pay a dividend that yields 5.1% annually and long ago earned a seat amongst the Dividend Aristocrats. It’s a consistent, sturdy dividend stock that will reward you handsomely for owning it.
Marqeta (MQ)
A riskier play than Amcor, fintech stock Marqeta (NYSE:MQ) deserves some consideration. This “modern card” issuing platform possesses much more growth potential than the packaging company. The stock is a long way down from its 2021 highs. But, there are arguments in favor of it gaining new heights once again.
Marqeta creates payment products for companies through its technology platform. Payments seamlessly flow from a customer to a merchant through a third-party app. It doesn’t matter if it’s for a delivery service or a buy now, pay later option, Marqeta’s technology makes it happen. These days, that’s mostly through digital payments company Block (NYSE:SQ).
The wildly popular person-to-person CashApp money transfer system uses a Marqeta-issued card. The four-year contract extension it won with Block last year was a double-edged sword. It ensured volume flow would continue. Yet, Marqeta agreed to substantially lower fees for processing the transactions. That will result in Marqeta’s revenue cut in half. But now, Block will negotiate with Visa (NYSE:V) and Mastercard (NYSE:MA) and assume the costs associated with it.
With many moving parts, Block accounts for nearly 80% of Marqeta revenue. But, it has signed deals with other companies for their cards, including Walmart (NYSE:WMT). Also, it has partnerships with Uber (NYSE: UBER) and DoorDash (NASDAQ:DASH). It is a riskier stock, but at around $6 a share, it could make for some tremendous long-term capital appreciation.
Nu Holdings (NU)
Also in the fintech space, Nu Holdings (NYSE:NU) is a Brazil-based digital bank with over 90 million customers throughout Latin America. It arguably rose to greater prominence after Warren Buffett or one of his investing lieutenants bought Nu stock for Berkshire Hathway (NYSE:BRK-A, NYSE:BRK-B). Buffett owns over 107 million shares, which at $9.50 a piece, makes it worth more than $1 billion.
Despite the low price, Nu Holdings stock isn’t cheap. It trades for 24 times next year’s earnings and 7 times sales and book value. Yet Nu is rapidly growing. It added 6% more customers sequentially and 27% more year over year (YOY). Brazilian customers represent 94% of the total, but they capture 51% of the adult population. It is now the fourth-largest financial institution in the country. And, the growth in Nu’s customer base outpaced that of the five largest existing banks combined.
Also, revenue and profits are rapidly expanding but are likely to accelerate further as it targets new markets and offers new products. Hard to imagine, but Nu is growing even faster in Mexico and Colombia than in Brazil. Right now, almost nothing can stop Nu Holding from maintaining this torrid pace. It might not remain under $10 per share for very long.
On the date of publication, Rich Duprey held a LONG position in AMCR stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
