These sub-$5 stocks should gain strength heading into 2022.
Many traders love low-priced stocks. For the cost of one share of Amazon .com Inc. (ticker: AMZN) stock, for example, an investor could buy many hundreds of shares in cheaper stocks. It’s true that investors should look at the total market capitalization in addition to just the nominal share price when considering a potential purchase. That said, many traders love cheap stocks, and thus it’s worth highlighting the best options available. In many cases, when stocks end up trading for less than $5, it’s because the business ran into hard times. If these companies manage to turn things around, they can return many multiples of their entry price. The following nine cheap stocks to buy for less than $5 could have what it takes to deliver outsize shareholder returns.
MamaMancini’s Holdings Inc. (MMMB)
MamaMancini’s is a small packaged foods company primarily focused on Italian cuisine. It offers frozen and refrigerated meatballs, meatloaf and pasta among its line of products. The company is enjoying a healthy growth trajectory: Revenues are up from $18 million to $41 million since 2017. The company also uplisted from the Over-the-Counter Bulletin Board to the Nasdaq as part of its corporate development. Shares hit $4 at one point but have sold off about 40%, giving later investors a chance to get into this story near the ground floor. As it stands today, the company is already significantly profitable on an earnings-per-share basis. And in 2023, according to analysts, the company could make 18 cents per share in earnings, which would make the stock at its current price sell for just 13 times expected earnings. That’s quite a delicious offer.
UpHealth has gone down, down, down. The recently created special-purpose acquisition company, or SPAC, has been one of the worst of the year. Shares plummeted from the opening $10 price to a sub-$2 level in just a few months. It’d be easy to conclude that UpHealth was just another terrible SPAC and leave it at that. However, UpHealth might have a comeback story, or at minimum a big bounce, given that it’s down more than 80%. The company seeks to roll up a variety of health care platforms. It owns operations in billing services, online pharmacy, telehealth and medical interpretation, among other assets. The collection of businesses is growing quickly, though it is not profitable. When traders start to value speculative growth companies more highly once again, UpHealth could see a swift recovery. The company also raised fresh capital around the current share price, which should help provide support for the stock.
Enel Chile is a Chilean power utility. Shares have been volatile and trending downward lately. That’s understandable, as the company had issues with COVID-19 along with price swings on foreign exchange and commodities. Upcoming elections in Chile have further added to the uncertainty. Regardless, shares are trading at an estimated 8 times this year’s earnings and 6 times next year’s earnings. That’s astonishingly cheap in the current marketplace. Enel Chile also offers a 9.4% dividend yield. Chile is well-positioned to benefit from the current commodity and green energy boom. It’s a leading producer of key raw materials such as copper and lithium that go into batteries and renewable energy components. Sooner or later, Chilean stocks should move back up, with Enel Chile being a big beneficiary.
Like Enel Chile, Ambev is another South American company caught in the wrong place at the wrong time. Ambev is the South American subsidiary of Anheuser-Busch InBev SA (BUD). It has dominant market share in brewing in Brazil and various other Latin American countries such as Argentina. Due to a combination of a pandemic-induced slowdown and volatile foreign exchange rates, Ambev saw profits slump in 2020. However, beer sales volumes have reached 2019 levels, and Latin American economies are picking back up this year thanks to the surge in commodity prices. There’s also the World Cup on tap for next year, which should boost beer consumption in many of Ambev’s key markets. The company also has a net cash position, ensuring that it can ride through some economic or political volatility in its local markets. The times may be turbulent, but folks still want to drink beer, and Ambev is the dominant option for providing a cold one in South America.
Lightinthebox Holding Co. Ltd. (LITB)
Lightinthebox is a Chinese online retailer focusing on budget-priced fashion, electronics and home goods. Chinese stocks have gotten obliterated over the past six months. A combination of regulatory crackdowns, trade tensions and supply chain issues has been the perfect storm for these firms. Lightinthebox stock has tanked along with the bunch. If you’re looking for a low-priced stock that could mount a comeback, however, this could be the one. The company generated $467 million of revenue last year, yet its market capitalization is less than $200 million. It’s not due to anemic margins, either. Lightinthebox earns strong profit margins on its sales, and is overall firmly in positive territory on an earnings per share basis. With shares down almost 40% year to date, LITB stock could be poised for a quick comeback when sentiment toward Chinese companies improves.
Otonomo Technologies Ltd. (OTMO)
Otonomo is another SPAC down on its luck; OTMO is off more than 50% from its $10 debut price. Otonomo seeks to be the leading marketplace for automobile data. Otonomo grabs data from connected cars and can then sell it to companies such as insurance firms or app developers that can analyze it to improve their business. The original equipment manufacturers are motivated to share that automobile data since Otonomo gives them a portion of revenues. Seems like a win-win. At the time of the SPAC deal, Otonomo already had more than 40 million vehicles connected to its smart platform. Critics say Otonomo is just a story at this point; the company doesn’t anticipate topping $100 million in annual revenues until 2024. However, arguably, the share price reflects that risk at this point, and Otonomo may just be one of the best ways to take advantage of the Internet of Things and big data.
Digital Ally makes video camera systems, primarily for law enforcement. In the wake of high-profile police shootings and facing pressure to reform law enforcement, municipalities have been looking for ways to keep their officers more accountable. Digital Ally’s body cameras and in-car units can record a definitive history of incidents to help prosecutors and defense attorneys get to the truth in a contested situation. Given the national discourse around reforming the police over the past year, companies like Digital Ally should be well-positioned to receive more contracts in coming years. The company has increasingly rolled out subscription-based offerings to police units, and it has added other product lines such as no-contact temperature screening and disinfectant instruments. Digital Ally has struggled to maintain profitability in recent years, and there’s a history of stock dilution as well. On the other hand, short interest is extremely high, so shares could be set for a sharp rally.
Elevate Credit is an online fintech firm. It offers lending services to nonprime borrowers. Historically, this is a risky business, and understandably many investors shy away from it. However, in an economy like this one with high levels of government stimulus and surging wages, conditions are good for lenders. Loan losses are low, and profits are plentiful. Elevate Credit is trading at just 6 times next year’s estimated earnings. This seems too low, given the high valuations people are assigning to other fintech offerings in the lending space, such as Upstart Holdings Inc. (UPST) and Affirm Holdings Inc. (AFRM). In comparison with those, Elevate has already demonstrated more hard data that its model is reliable and strongly profitable. The valuation ratio on subprime lenders should probably never be all that high, but even so, 6 times earnings is probably too low. In any case, the company can buy back a ton of stock if its share price remains depressed.
Rave Restaurant Group Inc. (RAVE)
Rave Restaurant Group either owns and operates or franchises out the Pizza Inn and Pie Five restaurant brands. Pie Five has generated buzz with consumers using a Chipotle Mexican Grill (CMG)-style offering where customers can build handcrafted pizzas with a high degree of personal customization. Rave is still a small company; it generated less than $9 million in revenue over the past 12 months. However, it is profitable. Pizza as a category has held up quite well with the pandemic. And Rave had shown some positive momentum in 2019 before the pandemic started. Shares are still trading far below where they were years ago, and the company is going for less than a $25 million market cap right now. That’s not a bad price for a small but profitable pizza franchise.