Penny stocks have long been given a bad name and for good reason. Companies with shares that hover around $5 (or less) are often victims of market movements, ebbing and flowing with more volatility than higher-priced stocks. But considering that the number of new, young retail traders is surging during the pandemic, many of them without much starting capital, cheap stocks – not necessarily penny stocks – can be an appealing way for them to dip their toes into the market. With a good amount of research, a shred of investing know-how and a bit of luck, investors can find some excellent low-priced stocks with big upside potential. Here are eight of the best cheap stocks, with bright futures whose shares are selling for roughly $5 or less right now.
Identiv
The world has changed dramatically in 2020, and so too have companies’ security needs. Many of Identiv’s products seem tailored to security during a global pandemic, including its touchless and at-home smart card readers. The company has also been able to pivot well during the pandemic; its Hirsch Velocity Software now includes contact tracing for office buildings that have begun to reopen, and Identiv has developed its wearable Body Temperature Measurement Patch to check people’s temperatures as stadiums and theme parks reopen. As a result, the company’s recurring revenue increased 13% in the second quarter, and its backlog of orders grew 100% since the same quarter last year, indicating that the future seems bright for Identiv.
SunOpta
SunOpta continues to be an excellent choice for investors who want to capitalize on the booming organic foods market. After undergoing a restructuring, the company now operates three different business segments: plant-based foods and beverages, fruit-based foods and beverages and global ingredients. All three segments saw impressive revenue growth in the first quarter, leading to SunOpta recording 13% adjusted revenue growth and the second highest adjusted (earnings before interest, taxes, depreciation, and amortization) in the company’s history. SunOpta has prepared itself to get through the pandemic by completing a $30 million equity raise and reducing debt by $20 million. These improvements to its balance sheet combined with the tailwinds in the organic food industry qualify SunOpta as one of the best cheap stocks to buy.
AMC Entertainment Holdings
Let’s be clear about something up front: Investing in AMC is only for the brave of heart. AMC is the largest movie theater operator in the U.S., but size doesn’t matter when local governments have forced the company to keep its doors closed for months – and even as theaters reopen, customers are still afraid to be in confined spaces with other people. AMC is a contrarian investment whose future is essentially predicated on one thing: a vaccine. If a cure for the virus does come to market within the next few months, shareholders are sure to be rewarded. But without a way to make customers feel safe in theaters, AMC will succumb to its mounting pile of debt. The bull case makes AMC’s low price point seem like a no-brainer, but right now the bears are winning.
LiveXLive Media
Speaking of industries that will continue to hurt as long as there is no vaccine, live concerts and events will remain on hiatus until crowds feel safe enough to return. Enter LiveXLive Media, a company that used to simply digitize concerts for your screen but has pivoted to livestreaming and pay-per-view quarantine concerts. The results speak for themselves: The company had a record 2020 fiscal year with revenue up 15% and subscribers growing 25%. With a 336% year-over-year increase in the number of events it has streamed this year and a 179% increase in hours streamed, LiveXLive is fully in growth mode and shows no signs of slowing down. Although the company will likely have to rethink its business model when concert venues start filling up again, LiveXLive is one of the few companies out there capitalizing on a global pandemic.
OrganiGram Holdings
As 2019 ended, most cannabis companies were ready to put a difficult year behind them and look toward a brighter 2020. Little did they know what this year would hold, and companies like OrganiGram have been forced to adjust to the new reality. OrganiGram recently reduced 25% of its workforce and lowered cannabis production at its New Brunswick facility in Canada to decrease costs – a necessary sacrifice for a company that saw its EBITDA turn negative due to higher cost of sales last quarter. OrganiGram has struggled these last few months, but the company could very well emerge from the pandemic more streamlined and cost-effective than ever before – and at a great price point for investors.
Catalyst Pharmaceuticals
The investment thesis for cheap stocks in the biopharmaceutical industry is usually predicated on the success of a new drug in clinical trials. Catalyst is one of the few that already has a successful drug on the market: Firdapse, which treats Lambert-Eaton myasthenic syndrome, or LEMS. The treatment has proven a hit, and Catalyst enjoyed a 134% quarter-to-quarter increase in revenue during its first quarter of 2020 thanks to Firdapse. Although the market for LEMS treatments is small (about 1 in 1 million people has LEMS), Firdapse is currently in trials as a treatment for muscle-specific kinase myasthenia gravis and Spinal Muscular Atrophy Type 3. If either one of these trials proves successful (both will be completed by year-end), Catalyst will have newer, larger markets to expand into and shareholders will continue to profit.
Aphria
While most cannabis stocks have struggled to achieve profitability, Aphria has managed to set itself apart with positive adjusted EBITDA in its last consecutive four quarters. The company has the largest cash balance in the cannabis industry – approximately 515 million Canadian dollars ($379.4 million) in cash and cash equivalents – and that’s particularly good news right now in the midst of the pandemic. But while others struggle, last quarter Aphria reported a 65% increase in net revenue and sold 14,014 kilograms of cannabis; that’s up 98% compared with 7,062 kilogram sold in the second quarter of 2020. The cost of that cannabis also decreased from CA$1.11 the previous quarter to CA$0.93 in the most recent period. In other words, last quarter Aphria produced more marijuana at a lower price while simultaneously selling more marijuana – a combination that shareholders are sure to love.
Nokia
The rollout of 5G networks around the world presents the once-mighty Nokia with an opportunity to turn things around, as does the recent change of heart many governments are having about using Huawei equipment to build those 5G networks. But this rollout will take time, so in the meantime investors should pay attention to how Nokia shores up its balance sheet – the company discontinued its dividend late last year to focus funding on building 5G infrastructure and has slowly but surely been clawing its way to positive free cash flow. If Nokia can illustrate that it has its house in order and has positioned itself well to take advantage of the opportunities it has been presented, then its cheap price point today may look like a bargain in a few months.
The best stocks for $5 or less:
- Identiv
- SunOpta
- AMC Entertainment Holdings
- LiveXLive Media
- OrganiGram Holdings
- Catalyst Pharmaceuticals
- Aphria
- Nokia
